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Pakistan Economy_Nov'22 inflation forecasted at 24.9%, (AKD Daily, Nov 29, 2022)

Pakistan Economy: Nov’22 inflation forecasted at 24.9%

 CPI inflation for the month of Nov’22 is anticipated at 24.9% as opposed to the 11.5% recorded during Nov’21 and 26.6% posted last month. This will take the average inflation during 5MFY23 to 25.4%.

On a sequential basis, the monthly inflation is expected to be recorded at 1.6%, largely on the back of jump in food inflation, which is expected to jump by ~2.7%MoM on the back of increase in prices of various perishable items such as vegetables, fresh fruits and eggs.

SBP in its last MPS briefing revised its estimates for FY23 inflation to 21%-23% from its earlier estimates of 18%-20%. The new SBP estimates are more in line with our estimates of ~24.8%. However, the new estimates mean that the central bank is estimating the inflation during the remainder of FY23 to average between 18%-21%.

The federal government has an unenviable task at hand of balancing fiscal and primary deficits as well as public spending in wake of flood devastations and may be forced to ramp up its tax collections even further, in order to unlock the next IMF tranche. These tax measures may again be inflationary in nature, hence potentially pushing inflation even beyond our estimates.

Belatedly, the central bank raised the interest rates in the country by 100bps to 16%, the highest they have been since the turn of the century citing the risks of inflation getting entrenched. The central bank didn't rule out chances of further rate hikes but  linked further rate hikes to future data points. Market took a beating after the latest rate hike, falling by ~850 points during yesterday’s trading session. We advise investors to remain cautious while building positions in the market and limit their exposure to blue chip and high dividend yielding scrips.