Pearl Securities Limited – Economy in focus

Karachi, February 04, 2015 (PPI-OT): Synopsis

Core inflation measured by the Consumer Price Index (CPI) is further restrained in the month of Jan’15, showing by just 3.88% YoY, beating the record set in Nov’14 (3.98%) of being the lowest level in the past eleven years. Improved investor sentiments after encouraging numbers lifted the benchmark KSE-100 by 232pts on the day of the announcement.

CPI Inflation is constrained at just 3.88% YoY for Jan’15; lower substantially by 403bps against inflation rate of 7.9% in Jan’14 and by 42bps against rate of 4.3% in Dec’14. Price control is primarily due to significant oil rate decline having a positive impact on consumer prices across the board. On monthly basis, inflation has grown at a relatively negligible level of 0.08% MoM, however, is greater against negative growth of -1.01% MoM in Dec’14.

Heavy weight segments such as ‘Food and Non-Alcoholic Bev.’ (F and B), ‘Housing, Water, Electricity, Gas and Fuels’ (HWEGF) and the Clothing and Footwear (CF) baskets show constrained growth while the ‘Transport’ segment shows increasing negative growth.

Basket growth contained Reduction in POL product prices has had a positive macro impact on most consumer product prices ranging from food to clothing. Heavy weight baskets such as the F and B,
HWEGF and the CF have all shown constrained growth against the previous month.

The F and B basket shows growth of 2.13% during Jan’15, lower by 40bps MoM. The non-perishable item sub-segments of the F and B basket shows growth of 2.06%, lower by 63bps MoM. Overall the F and B basket has 34.8% weight in CPI calculation.

The HWEGF basket with 29.4% weight shows growth of 5.74%, lower by 10bps MoM while the CF segment with 7.6% weight shows growth of 8.09%, lower by 72bps MoM.

Due to reduction in POL products, the Transport segment shows increasing negative growth in Jan’15 of -8.1%, which is greater by 208bps MoM against negative growth of – 6.02% in the previous month.

Notable reduction in popular consumer items Strong reductions are seen in some popular consumer items on month over month basis. In the food segment, the most prominent price reductions are seen in prices of Potatoes decreasing by 39%, Onions by 28%, Fresh Vegetables by 15%, Fresh Fruits by 6%, Sugar by 5% and Gur by 4%.

In non-food items, Motor Fuels and Kerosene Oil prices have declined by 6.6% MoM and 6.5% MoM respectively. These items also show lower levels against the previous year, showing a decline of 18% YoY and 16% YoY respectively. This attitude will help to push up the equity market by grabbing attention from fixed income/debt market investors due to attractive valuations in Cement, Fertilizer, Oil and Gas, Textile, Auto, Fertilizer and Power sectors.

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