Inflation report: CPI expected at 12.80%
Overview of May 2024 Inflation
The inflation rate for May 2024 is anticipated to be 12.80% year-over-year (YoY), a decrease from the 17.34% YoY observed in the previous month. On a month-over-month (MoM) basis, inflation is expected to decline by 2.37%. This reduction is largely due to a decrease in the prices of essential commodities during the measurement period.
Food index trends
- Food Index: The Food Index is estimated to drop by 5.8% MoM, marking the second consecutive monthly decline following a 2.4% YoY decrease in April 2024.
- Key Contributors:
- Wheat Flour: ↓ 24% MoM
- Onions: ↓ 44% MoM
- Chicken: ↓ 26.3% MoM
- Fresh Fruits: ↓ 18.6% MoM
These reductions are influenced by improved supply conditions and a reluctance of Punjab authorities to procure wheat at the minimum support price (MSP).
Housing and utilities
- Electricity Adjustments: The expected negative Fuel Cost Adjustment (FCA) for May 2024 is PkR 2.83/unit, compared to PkR 4.92/unit in April 2024. This contributes to a cumulative impact of -6.1% MoM.
Future CPI projections
Despite the sharper-than-expected drop in inflation, future CPI readings are projected to hover near current levels until December 2024, with an estimated average of 13.0% for the second half of the calendar year 2024 (2HCY24).
Factors Influencing Future Inflation
- Low Base Effect: A significant low base effect is expected to kick in post-June 2024.
- Budgetary Measures: Upcoming budget measures, such as the reintroduction of sales tax on regulated fuel products, may add 70-75 basis points to the National Consumer Price Index (NCPI) estimate for July 2024, pushing it to around 15.0% YoY in August 2024.
Inflation and Monetary Policy Outlook
With CPI averages expected to stay below 15% YoY on a twelve-month forward basis, policy decisions will likely prioritize securing external and fiscal accounts before any monetary easing. Although the central bank is anticipated to take steps to ease stagflation risks, the monetary policy rate is expected to stabilize at 18% by the end of CY24.
Conclusion
The inflation for May 2024 shows a significant decline compared to the previous month, driven by decreases in essential food commodities and utility adjustments. However, future inflation trends will be influenced by budgetary measures and a low base effect. The central bank is expected to play a crucial role in managing inflation and monetary policy in the coming months.
| Sector | Weights | May-24 | Apr-24 | MoM | May-23 | YoY |
|---|---|---|---|---|---|---|
| General | 100.0% | 257.1 | 263.3 | -2.4% | 228.0 | 12.8% |
| Food | 34.6% | 269.8 | 286.4 | -5.8% | 264.5 | 2.0% |
| Alcoholic | 1.0% | 367.8 | 366.1 | 0.5% | 356.4 | 3.2% |
| Clothing | 8.6% | 242.8 | 238.4 | 1.9% | 203.0 | 19.6% |
| Housing | 23.6% | 235.7 | 239.8 | -1.7% | 177.9 | 32.5% |
| Furnishing | 4.1% | 266.7 | 266.4 | 0.1% | 235.1 | 13.4% |
| Health | 2.8% | 237.3 | 237.3 | 0.0% | 201.9 | 17.5% |
| Transport | 5.9% | 318.2 | 320.3 | -0.7% | 285.4 | 11.5% |
| Communication | 2.2% | 134.8 | 134.8 | 0.0% | 118.3 | 14.0% |
| Recreation | 1.6% | 258.8 | 258.8 | 0.0% | 242.9 | 6.5% |
| Education | 3.8% | 196.2 | 196.2 | 0.0% | 171.6 | 14.3% |
| Restaurants | 6.9% | 272.2 | 269.4 | 1.1% | 235.1 | 15.8% |
| Miscellaneous | 4.9% | 282.2 | 282.2 | 0.0% | 246.6 | 14.4% |
Disclaimer:
The information in this article is based on research by AKD Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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