CPI inflation recorded at 9.05% YoY in Mar’21

For the month of Mar’21, headline inflation as measured by CPI clocked-in at 9.05% YoY, taking the 9MFY21 average inflation to 8.34% YoY compared to 11.55% in 9MFY20. On a yearly basis, the jump in index came mainly due to: i) 11.6% YoY increase in food prices – which has a ~35% weight in the CPI basket (in particular non-perishable food items – up by 17.03% YoY), ii) Housing index – up by 8.8% YoY, iii) Clothing index – up by 10.7% YoY, iv) Restaurants & Hotels index – up by 8.1% YoY, and v) Miscellaneous – up 10.6% YoY.

On a MoM basis an increase of 0.36% unveiled

Food inflation registered a 1.7% surge MoM in the month of Mar’21. Perishable food index recorded a 2.79% increase with items such as Fresh Fruits, Eggs, Chicken, Sugar and Potatoes contributing the most to the monthly food inflation increase. On the flip, the perishable items that were down during Mar’21 included: Fresh Vegetables, Onions, and Tomatoes. Moreover, the non- perishable food index posted a 1.57% MoM increase during the month. On the monthly basis, indices that receded were: i) Housing index- down by 1.81% MoM on the back of 8% MoM lower electricity charges, ii) Transport index- down by 0.7% MoM due to 3% MoM lower transport services charges and, iii) Miscellaneous- down by 0.5% MoM.

Core inflation MoM: Urban +0.2% | Rural +0.3%, in Mar’21

The trend in core inflation showed moderation on a YoY and MoM basis from the previous month. The urban core inflation measured by non-food, non-energy (NFNE), during Mar’21, increased by 6.3% YoY as compared to an increase of 6.4% in the previous month and 7.4% in Mar’20. Rural, on the other hand, increased by 7.3% YoY in March as compared to an increase of 7.7% in the previous month and 9.4% in Mar’20. On the monthly basis, Urban and Rural NFNE increased by 0.2% and 0.3%, respectively.

CPI and Monetary Policy Outlook

Headline inflation FYTD now averages at 8.3% YoY versus 11.6% YoY in the corresponding period last year. Going forward, we may witness a further rise in food prices due to the Ramadan factor (in April’21). In addition, any further electricity adjustment also is a key concern to our overall inflation expectation. For now, we expect FY21 inflation estimates to hover slightly above the upper limit of SBP’s expected 7-9% range, around 9.3% YoY. Keeping in view, inflation projection and SBP’s stance to support domestic demand, we expect policy rate to remain unchanged at 7% in May’s MPS, hence closing this FY at the same rate.

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