Pakistan Economy_Aug'18 CPI preview losing steam?
Breaking its monthly upward momentum, headline inflation for Aug'18 is expected to hover at the same levels as of last month, likely to be recorded at 5.86%YoY (vs. 5.83%/3.42%YoY in Jul'18/Aug'17). On MoM basis, CPI index is expected to rise 0.22% vs. 0.94%MoM in Jul'18. Key contributor is anticipated to be the decline in oil prices (in the previous month) by way of reduced sales tax, likely to pull down transportation index down 0.3%MoM. Additionally, uptick in perishable food prices should be countered by seasonal fall in chicken and fruits prices to restrict food index, rising only 0.42%MoM (vs. 0.63%MoM in Jul'18). That said, keeping in view higher international oil prices and FX swings, inflationary pressures are likely to persist, where we estimate CPI to average out to 6.8%YoY in FY19F. However seasonal dip in perishable food prices in winters is likely to set tone for CPI readings in 2HFY19. While the stance of new setup with regards to its willingness to push monetary policy to counter inflation remains uncertain, an upward interest rate profile seems incontrovertible. In this backdrop, another +175bps hike remains on the table in FY19 with TR/DR ending at 9.25%/9.75%.
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