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Pakistan Economy: Dec 2018 CPI at 6.17% YoY; Below Expectations

• Consumer Price Index (CPI) inflation for Dec 2018 stood at 6.17% YoY as compared to 6.5% in Nov 2018, which was below market consensus of 6.59% according to data compiled by Bloomberg. On MoM basis, inflation decreased by 41 bps vs. an increase of 11 bps during the previous month.
• Core inflation (non-food & non-energy CPI) maintained increasing trend and was 8.4% YoY during the month indicating rising inflationary pressure. Bulk of the non-food & non energy items exhibited monthly increase of more than 60bps.
• Food inflation remained flat in Dec 2018 vs. ~1% YoY rise in the previous month. On monthly basis, Food Inflation depicted decline of 159 bps vs decline of 61 bps previous month.
• Despite the significant PKR devaluation during 2018, Food Inflation remains benign and has averaged 2-2.5% during 2018. This is likely because of better and sustained food supplies. We expect Food Inflation to increase on the back of expected rise in energy prices and lagged impact of rupee devaluation.
• CPI of Housing, Water & Electricity segments was up 9.1% YoY in Dec 2018 while on monthly basis it remained flat. We expect this segment to increase significantly in January on the back of both adjustment in electricity prices (increase of 10-11% announced in December) and quarterly house rent adjustment.
• CPI Inflation has now clocked in at 6.0% during 1HFY19 and is anticipated to average 7.5% in FY19. The rise in 2HFY19 is because of expected further hikes in energy prices and likely increase in taxation measures to bridge the yawning fiscal gap.