AKD Quotidian about — Inflation to inch up in FY14

Karachi, July 02, 2013 (PPI-OT): Jun’13 CPI has clocked in at 5.85%YoY/0.73%MoM, thereby bringing the FY13 CPI average to 7.40% which is 160bps below the DR. At the same times Trimmed Core inflation has clocked in at 6.8%YoWO.6%MoM n Jun13, bringing the FY13 average for this measure to an even 9.0%.

According to AKD Securities the recent uptick in inflation has primarily been brought about by higher food prices which may be attributed to a pre-Ramadan uptick. That said, AKD Securities believes that inflation may continue to depict an increase going forward particularly as announced measures such as the
Iper cent GST increase and anticipated measures such as an increase in power tariffs come into play.

In this regard, assuming a 0.75%MoM increase in inflation across the fiscal year, CPI stands to average 8.254 In FY14. As a result, within the backdrop of an imminent re-entry into an IMF program, the latest 50bps cut in the DR to 9% likely represents the end of the monetary easing cycle, in AKD Securities views. AKD Securities flags some of the hitherto underperforming banks such as ABL and NBP as primed for a catch-up rally.

CPI Review; After increasing by a swift O73%MoM, Jun’13 CPI has registered at 5.85%YoY, upstream 5.13%YoYin May13. This brings the FY13 CPI average to 7.40%. At the same time, Trimmed Core inflation has clocked at 6.8%YoY in Jun13 to average 90% in FY13.

The main thrust to fresh inflationary pressures (the average sequential CPI across FY13 was O48%MaM) has arisen from higher food prices e.g. chicken, potatoes and tomatoes, which AKD Securities attitude to a pre-Ramadan uptick.

CPI Outlook: While the recent increase in price pressures may be seasonal in nature, AKD Securities believes that inflation may continue to depict an increase going forward. in this regard, AKD Securities points to the GST increase to 17% and structural reforms under an anticipated IMF program to fuel price pressures.

As such, going by news reports, IMF pre-conditions including an increase in power tariffs (by up to 60%+) and lesser intervention to shore up the exchange rate wilt have inflationary slipovers. Assuming a O.75%MoM increase in inflation across the fiscal year, CPI stands to average 825% n FY14 with potential for slippages.

Interest Rate Outlook: The monetary easing cycle initiated since Jul11 has till date shaved off 500bps off the DR which now stands at 9%. That said, considering that inflation appears to have troughed out already while press reports point to IMF unease with the latest reduction in interest rates, t appears likely that the monetary cycle is at an end.

While AKD Securities sees interest rates being maintained across IHFYI4, a consistent increase in price pressures may open up prospects for tightening by early 2HFYI4, in AKD Securities views. Within this backdrop, AKD Securities believes Banks are poised to depict improved price performance going forward where AKD Securities flags hitherto ABL (TP: PkR8I/share) and NBP (IP: PkRSI/share) as primed for a catch-up rally.

Leave a Reply