AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, June 23, 2016 (PPI-OT): Inflation Preview June 2016
Elixir Securities Limited expects Jun-16 CPI to clock in at 3.61% with MoM inflation estimated at 1.05%, which shall result in average inflation for FY16 to clock in at 2.89%, markedly lower compared to 4.53% in the same period last year.
Elixir Securities Limited expects inflation to pick up pace in FY17 where inflationary pressures would likely emanate from i) recent rebound in international oil prices (latest news flow suggest PKR1.8-4.5/ltr increase in POL products for Jul-16) and ii) low base effect of FY16.
Elixir Securities Limited believes sustained inflationary pressures ahead would likely reduce RIR to 0.82% by 2QFY17 while the same would be in negative territory from there on which would likely induce central bank to initiate monetary tightening.
Jun-16 CPI expected at 3.61% YoY: Given rising inflationary pressures, Elixir Securities Limited expects Jun-16 CPI to increase by 3.61% YoY with MoM inflation estimated at 1.05%, consequently lowering an average inflation for FY16 to 2.89% and markedly lower as compared to 4.53% in FY15. This can be further corroborated by weekly SPI readings which re-affirms upward inflationary trend during the month, as it increased by 1.02% in last 5 weeks. Despite deflation of 0.21% in the previous month, a sequential uptick in inflation during Jun-16 (i.e. 1.05%) is primarily attributable to a relatively sharp increase in food inflation by 2.27% (CPI weight of 34.8%) with the onset of Ramadan during the period, pushing prices of food items northwards due to robust demand.
As per weekly SPI data, prices of fresh fruits and vegetables have risen considerably during the period (i.e. Tomatoes; +82.4%, Potatoes; +49.9% and Bananas; +24.9%). However, GoP’s decision to defer POL products price hike for the month of Jun-16 (Ogra recommended ~9-14% increase in POL products) is expected to somewhat tame down growth in Jun-16 CPI. Other notable increase CPI basket constituents would likely emanate in the Beverage and Tobacco (+3.75%) head where FY17 budgetary proposals of increasing duties and taxes on cigarettes has propped up prices of the same.
Inflationary pressures to gather momentum from 2QFY17…: Elixir Securities Limited expects inflation to pick up pace in FY17 where inflationary pressures would likely emanate from i) recent rebound in international oil prices (latest news flow suggest PKR1.8-4.5/ltr increase in POL products for Jul-16), ii) low base effect of FY16 and iii) indirect impact on retail prices stemming from budgetary proposals which include additional new taxes and withdrawal of concessionary SRO’s. Elixir Securities Limited expects inflation to hit 5-6% mark in 2QFY17 assuming average monthly inflation of 0.6pp (last 5-year average of 0.52%) with average FY17 inflation to likely clock in at around 6%.
Monetary Cycle Reversal from 2HFY17: While current monetary easing cycle has bottomed out in Elixir Securities Limited’s opinion, Elixir Securities Limited believes sustained inflationary pressures ahead would likely reduce RIR to 0.82% by 2QFY17 while the same would be in negative territory from there on which would likely induce central bank to initiate monetary tightening by 50-100bps.