October CPI likely to fall further

The much-awaited Consumer Price Index (CPI) inflation number for the month of October is expected to be released this week, which is likely to fall in the range of 10-10.3 percent as against 10.5 percent for September, analysts said. This would be the third consecutive monthly decline which will render four months' FY12 average inflation to 11.2 percent as compared to 13.9 percent in the same period of last year.
"The downward trend in the inflationary pressure is expected to create further room for the central bank to continue the process of monetary easing in the next monetary policy statement (MPS) due towards the end of November", Naumah Khan, analyst at Topline Securities said.
He said that the increase in the regulated prices of electricity and petrol during the month of October on account of rise in the international oil prices, and its indirect implications on the revised CPI basket could keep the October MoM inflation downward sticky. On the other hand, relative stability in food prices, particularly that in perishable items, as Ramazan and Sindh floods' effect fade away, would somewhat soften the impact of inflationary pressure generated by the aforementioned two factors, he added.
"Overall, we estimate October MoM inflation to clock between 0.6 and 0.8 percent, compared to 1.0 percent MoM in September", Nauman said.
"With high base effect of last year, we expect the MoM inflation number to translate into YoY inflation of 10-10.3 percent, which will be lowest since February 2010, under the revised CPI basket", he added.
The basket was revised in September on the basis of House Expenditure Survey conducted in 2007-08 and rebased to July 2008.
"Furthermore, we expect four months of FY12 average inflation to be around 11.2 percent as against 13.9 percent in the same period last year", he said.
"With high base effect phenomena expected to keep inflationary numbers subdued (at least till February 2012), we estimate average FY12 inflation to stand between 11.5 and 12 percent, which is slightly lower than government as well as central bank's expectation", he said. "Therefore, with present inflationary trend falling in the acceptable range and real interest rate still in the positive zone, we expect another round of monetary easing of 50bps in the November MPS", he added.