Aug’22 Inflation_CPI inflation expected at 26.9%, (AKD Daily, Aug 31, 2022)
AKD Daily
Aug’22 Inflation: CPI inflation expected at 26.9%
We expect CPI inflation for the month of Aug’22 to clock in at 26.9%, this comes on the back of monthly inflation of ~2.2%MoM. Food, clothing and housing indices are the key drivers behind this month’s soaring headline inflation, each reporting monthly inflation of 1.1%, 1.1% and 6.0% respectively.
- With country affected by the worst of flooding in the recent memory, we do not expect inflationary pressures easing off anytime soon as large scale destruction of food crops across Sindh and southern Punjab regions will introduce another wave of inflationary pressures.
- Consequently, we revise our inflation estimates for FY23 to 24% as opposed to our earlier estimates of ~21.5%. The revision comes after we upped our MoM inflation estimates by 20bps in the wake of crop damages arising from floods.
- The central bank chose to maintain interest rates at 15% in the previous MPS, against our forecast of 50bps—100bps hike. However, soaring inflation reinforces our belief that SBP will be forced to increase the interest rates further in coming months. The current real interest rate (using Aug’22 inflation estimates) stands close to –ve 1200bps, amongst the highest in the world.
- Market will remain jittery as the anticipation of further rate hikes by central bank builds up owing to flooding in the country. Governor SBP, in the last MPS highlighted his expectations that inflation will peak out towards the end of CY22 and there will be a sharp decline from the new year. However, the recent flooding in the country may force the central bank to revise its inflation estimates and recalibrate it strategy.
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