NCPI Update: inflation trends and forecast May 2024

Inflation Trends in May 2024

In May 2024, the National Consumer Price Index (NCPI) is expected to decrease to 14.3% year-over-year (YoY), representing a 1% month-over-month (MoM) decline. This drop is primarily driven by significant reductions in food prices, which account for about 35% of the index. Improved supplies have led to this decline, with notable decreases in prices of vegetables, wheat, and chicken.

Key Factors Contributing to the Decline

• Food Prices: Improved supplies have led to a broad-based reduction in food prices.
• Transport Segment: Lower petroleum product prices contributed to a negative impact on the transport segment.
• Housing & Utilities: A slight decrease in electricity prices has resulted in a 0.5% MoM decline in this category.

Group	Weight (%)	May-24	Apr-24	May-23	MoM %	YoY %
Food & non-alcoholic beverages	35%	279.3	286.4	264.5	-2.5%	5.6%
Housing, utilities, etc.	24%	238.7	239.8	177.9	-0.5%	34.2%
Transport	6%	314.8	320.3	285.4	-1.7%	10.3%
General	100%	260.7	263.3	228.0	-1.0%	14.3%

Outlook for June 2024 and Beyond

Starting June 2024, the NCPI is likely to pick up due to a lower base effect. The State Bank of Pakistan (SBP) may implement a token rate cut of 100 basis points (bps) in June. However, several factors could lead to an increase in headline inflation beyond June, including:

• Budgetary adjustments such as increases in Petroleum Development Levy (PDL) and higher General Sales Tax (GST) on petroleum products.
• Revisions in energy tariffs.
• Potential deterioration of the Rupee in anticipation of the next IMF program.

These factors are expected to drive up core inflation as well.

Monetary Policy and Inflation

The table below summarizes recent monetary policy announcements by the SBP:

MPS Date	Stance	Effective Policy Rate
4-Apr-23	+100bps	21.00%
12-Jun-23	Unchanged	21.00%
26-Jun-23	+100bps	22.00%
31-Jul-23	Unchanged	22.00%
14-Sep-23	Unchanged	22.00%
30-Oct-23	Unchanged	22.00%
12-Dec-23	Unchanged	22.00%
29-Jan-24	Unchanged	22.00%
18-Mar-24	Unchanged	22.00%
29-Apr-24	Unchanged	22.00%

The central bank’s policy rate has remained unchanged at 22.00% since June 2023, reflecting a cautious approach to managing inflation and economic stability.

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Disclaimer:

The information in this article is based on research by Taurus Securities Limited. 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.