Aaj News

Experts see Pakistan’s inflation rate topping 24% in July

Rupee depreciation, high energy tariffs, and seasonality in prices of edible items will contribute to high CPI reading
Published 30 Jul, 2022 06:49pm
<p>Artwork via Business Recorder</p>

Artwork via Business Recorder

Pakistan, already in the midst of a decade-high inflation rate, exchange-rate crisis and fears over its balance-of-payments’ position, will see food and energy prices rise further with the headline inflation likely to cross 24%, warned economic experts.

“Inflation is expected to put Pakistan’s broad Consumer Price Index at 24.1% in July,” said Wajid Rizvi, Head of Research at Tresmark Research, in a report, citing Eid-festivity-based seasonal rise in food inflation along with high energy prices.

CPI-based inflation hit 21.3% on a year-on-year (YoY) basis in June 2022. This was the highest monthly CPI reading (YoY basis) since December 2008 when it was recorded at 23.3%. Now, it is expected to go beyond the 2008 level.

Tresmark said it expected persistent food inflation during July owing to rise in wheat, edible oil, potatoes, onions, and other fresh vegetable prices.

“We inextricably link rising food inflation with seasonal demand spike of barbeque-related vegetables during Eid festivity in Pakistan,” said the report.

“Some of it is also underpinned by higher retail fuel prices that have rocketed supply costs.”

Rizvi highlighted that the transmission of international palm oil prices, which have declined in recent weeks, remains to be seen in headline inflation.

“We have estimated that domestic edible oil prices normally track international palm oil prices, however, the impact carries a lag. Simultaneously, the free fall in Pak Rupee continues to escalate costs while most domestic suppliers continue to hold high price inventory, rendering it infeasible to push an instant respite to broad inflation.”

The report also pointed that energy inflation continues to remain high during July as retail fuel prices were revised upward while charging petroleum levy.

“The mid-July reduction in retail fuel prices becomes a part of next month’s inflation. Consequently, some of the respite in transport index will erode as the government attempts to increase levy,” the report said.

“We believe higher Fuel Cost Adjustments (FCA) outturns will be seen in coming months, primarily due to increased reliance on FO-based power generation.”

Moreover, the ongoing free fall of Pakistani rupee would restrict any respite in inflation.

“Needless to mention, nearly 20% of the headline inflation reading is directly impacted by PKR devaluation, which will continue to erode any solace from the softening of international prices.”

Meanwhile, Fahad Rauf, who heads research at Ismail Iqbal Securities Limited, expects headline inflation to increase to 25.2% in July against 21.3% recorded in June.

“This is similar to the highest reading in the 21st century recorded at 25.3% in August 2008 during the global financial crisis,” said Rauf in the IISL report.

“The inflationary pressure is expected to continue in coming months as energy tariff adjustment (electricity base tariff hike and gas price revision) has yet to reflect in CPI numbers, while sharp PKR depreciation would also add to inflationary pressures.”

This article was first published on Business Recorder here.




rupee depreciation

food inflation

Comments are closed on this story.