CPI Inflation jumps to 10.1%YoY in January 2012 – Alfalah Securities Limited

Karachi: According to the Pakistan Bureau of Statistics (PBS), the Consumer Price Index (CPI) inflation showed a rise of to 10.1% YoY in January 2012 while depicting an increase of 1.54%MoM over the previous month of December 2011 mainly due to hike in the prices of food commodities.

According to According to Alfalah Securities Limited, this is slightly higher than what Alfalah Securities Limited witnessed in December 2011 i.e 9.7%. However, it is still slightly lower than Alfalah Securities Limited’s high end expectation of 10.5% where Alfalah Securities Limited was expecting inflation to range between 10 to 10.5%.

The question arises whether Central Bank will reduce the discount rate in its monetary policy to be announced on Feb 11? Alfalah Securities Limited believes that, keeping in view that the real rates are still positive by 1.9%, the rates can be cut by 50-100bps. However, since Central Bank is expecting inflation to increase further while govt. borrowing has also been on the rise, and an IMF board meeting is due this Friday, Feb 3, 2012 whereby they can potentially advise the Central Bank to keep a tight monetary stance, Alfalah Securities Limited maintains a cautious outlook on the interest rates. Alfalah Securities Limited expects at best a cut of 0.5% if not unchanged. Moreover, Alfalah Securities Limited expects that, even if the rates are cut now, the Central Bank will ultimately have to revert it based on higher inflation ahead. The stock market would take it positive if interest rates are cut where the highly leveraged companies like Engro, Nishat Mills, DGKC, etc. to benefit more from the rate cut.