Consumer Price Index is expected to register a YoY rise of 13.41% for May’11: Arif Habib Limited

Karachi: The Federal Bureau of Statistics (FBS) is expected to release the inflation figures for the month of May’11.

According to Arif Habib Limited, they expects Consumer Price Index (CPI) based inflation for May’11 to clock in at 13.41% YoY compared to 13.04% YoY recorded in Apr’11. Low base effect, rising food and oil prices are the likely factors for higher CPI. However, on MoM basis Arif Habib Limited expects the CPI to register an increase of 0.39% compared to a rise of 1.62% experienced during Apr’11.

Inflationary pressures remaining eminent on the back of rising food prices…
The core inflation (Non-Food Non energy) has remained in single digit for the last 9-months, hence inflationary pressure are mainly emanating from surging food and energy prices. Although the food prices have started to depict a downward trend after augmenting a 21% YoY in Nov’10, but overall risk of high food prices remains eminent. The Sensitive Price Index (SPI) registers a 0.21%MoM growth for May’11 against 0.81%MoM in Apr’11. Going forward Arif Habib Limited believes international commodity prices are likely to stay firm owing to ongoing unrest in MENA countries, depleting agricultural stock of major commodities (rice, wheat, sugar, dairy, cotton etc.) due to poor weather conditions and US Dollar weakening.

…alongwith non-food prices staying downward sticky
The impact of rising global commodity prices is also evident in the Wholesale Price Index (WPI) which for the period 10MFY11 has registered a 23.3%YoY growth. As the impact of WPI is visible in the CPI based inflation with a lag effect, non-food based inflation is also expected to register a rise. The government’s decision to revise the electricity tariff by 2% every month, will hit fuel & lightening cost. For the month of May’11 both MoGas and HSD both have registered MoM rise of 6% and 5%, respectively. Arif Habib Limited expects the Transport & Communication category to record a 0.12% MoM while Fuel & Lightening is expected to register a 0.7%MoM rise for May’11.

Low inflation to may give room monetary easing from 2HFY12…
Arif Habib Limited expects CPI inflation for the FY11 to fall under 14.5% YoY. With the recent decision to deregulate POL prices and government firm stance on containing fiscal deficit within 4% of the GDP bracket, Arif Habib Limited may see headline inflation to start trading downward from 2QFY12. This coupled with high base effect carried forward from 1HFY11, Arif Habib Limited expects the CPI to average out 12-13%YoY in FY12. In regards to above the State Bank of Pakistan (SBP) may hence opt for monetary easing starting 2HFY12.

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