July 1, 2022 (MLN): Energy inflation, driven by the withdrawal of fuel and electricity subsidies, propelled headline inflation to a 13-year high of 21.3% in June 2022, from 13.8% in May 2022 and 9.7% in June 2021. serious toll on consumer real income.
The June inflation rate accelerated above market expectations, providing a strong case for another rate hike in the coming monetary policy.
On a sequential basis, inflation rose 6.34% from 0.4% in the previous month, driven by a huge surge in fuel prices due to higher international oil prices and the end of subsidies to revive the stalled IMF program to blow in. As a result, the transportation index rose by 24.4% MoM, reflecting the average increase in gasoline and diesel prices of 39% and 48% MoM, respectively.
Recent data from the PBS confirmed that June saw jumps on a sequential basis, including the food group and housing index, thanks to a continued rise in perishable and non-perishable foods and a rise in energy tariffs.
In broad-based inflation, the food basket witnessed a MoM of 5.5% as there were visible jumps in the prices of potatoes, eggs, legumes, vegetable ghee and cooking oil amid higher palm oil prices and currency depreciation, with a increase of 12%-35%.
While the housing index (weight: 23.6%) grew by 7.7% MoM because the electricity rate was increased by 6.08% MoM. The index is expected to rise further in July due to an increase in the base rate of Rs 7.9 per unit.
In addition, an increase in beverages in June fueled inflation by 7% MoM as a result of continued increases in tobacco prices.
Year-over-year, the increase in CPI was led by the increase in transportation, food, restaurants and hotels, household maintenance and equipment, beverages, sundries, clothing and footwear and housing index by approximately 62%, 26%, 22%, and 19% respectively. , 17.6%, 16%, 13.7% and 13.5%, YoY.
Regionally, the urban CPI recorded an increase of 6.19% MoM and 19.84% YoY in June 2022, while the rural CPI rose 6.57% MoM and 23.55% YoY in the said month rose.
Meanwhile, urban core inflation measured by non-food, non-energy (NFNE) accelerated to 11.5% yoy in June 2022 from 9.7% in the previous month, while rural core inflation rose to 13.6% yoy in the reporting month compared to 11.5% recorded in May 2022.
In these unprecedented times, soaring commodity prices and supply bottlenecks are exerting inflationary pressures on countries that are net oil importers. Pakistan is also one of them that is bearing the brunt of high inflation.
Fiscal year 2022-23 is expected to be a difficult year as headline inflation could fall between 15-20%, the market expects to risk tilted upwards due to currency depreciation and rising fuel prices due to tariffs and taxes. taxes. the government makes budgetary changes.
This eventual rise from more than a decade of high inflation has created some room to raise key rates to cool this inflation.
Despite the SBP’s actions in improving liquidity, and more importantly, in line with the proposed fiscal contraction in FY23 budget, market experts believe that the SBP will lower the key rate by an additional 50 percent. -150 basis points at the upcoming MPC meeting on July 7, 2022, given the higher inflation forecast and likely agreement with the IMF.
While the IMF program remains critical, the conditions leading to a successful IMF Staff Level Agreement are inflationary in nature due to the resumption of PDL and GST on POL products, rationalization of electricity and gas tariffs and further monetary tightening, a statement said. report from JS Global. †
Whereas the latest Bloomberg report said the country would likely need to raise its key rate by 50 basis points in the next quarter before it receives IMF money.
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