Pakistan Economy_Usual suspects keep inflation choppy, (AKD Daily, Jul 22, 2020)
AKD Daily
Pakistan Economy: Usual suspects keep inflation choppy
- Initial price data for Jul’20 indicates headline inflation to gain further momentum, with the monthly reading estimated at 8.64%YoY vs. 8.59%YoY in the preceding month and 8.4%YoY in Jul’19, where flat headline number is a consequence of higher base.
- On a MoM basis, however, inflation is likely to soar 1.88%MoM – the largest MoM increase since Jan’20, when inflation rose to a multi-year high. Food inflation due to an increase in certain commodity prices and transport inflation following the upward reversal in gov’t administered POL product prices are two major sources, driving headline inflation higher.
- From a monetary policy vantage, the 100bps rate cut in emergent MPC meeting in late Jun’20 has pretty much rendered Jul’20 a moot point, where we expect the MPC to hold interest rates steady. The resurgence of inflationary pressures further supports our view of status quo in the upcoming routine MPC meeting.
- Over the medium term, after an aggressive easing of cumulative 625bps and with the real interest rates in the zero to negative range, we expect the central bank to be on a ‘long pause’. That said, better than expected improvement in the external account as seen in the outgoing quarter may create room for further monetary action, though unlikely.
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