Pakistan Economy: CPI - Setting the path straight , (AKD Daily, Sep 05, 2019)
- PBS has finally rolled out the new inflation methodology, based on which headline inflation for Aug’19 stood at 10.5%YoY vs. 8.4%YoY in the preceding month and 6.2%YoY in Aug’18.
- The YoY increase in inflation was primarily driven by: i) rising food prices – a likely impact of trade embargo on India, ii) higher transportation prices as a result of rising international oil prices and weaker PkR, and iii) lagged impact of the implementation of taxation measures.
- On a monthly basis, CPI index moved up 1.6%MoM, where higher food, clothing, and transportation prices were major drivers, with respective contributions of 69%/7%/8%.
- Note that the new inflation reading is significantly below the inflation based on old methodology, where the latter clocked in at 11.6%YoY vs. 10.34%/5.8%YoY in Jul’19/Aug’18.
- Already yesterday, the market cheered lower CPI reading (vis-à-vis the old methodology number), gaining 899 points intraday (day high vs. low) with expectations of potential monetary easing doing rounds. While numbers do point towards end of the tightening cycle, we believe any easing expectation should remain tempered given CPI peak is likely to come across in Sep’19 at 12.2% (based on old methodology) with subsequent tapering thereafter.
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