Inflation in Pakistan expected to be over 26% in September: report

Rising cost of food items, a weakening rupee, and aftershocks of devastating floods are expected to keep inflation rate in Pakistan above 26% in September, said a brokerage house report released on Monday.

“We expect another month of 25%+ Year on Year (YoY) Consumer Price Index (CPI) reading, where we expect CPI for September 2022 to clock in at 26.4%,” said JS Global in its report.

“While this would be lower than Aug-2022’s readings of 27.3%, we expect inflation trend to remain on the higher side owing to higher food inflation and ongoing second-round impacts."

August's inflation reading in Pakistan hits 27.3%, highest in over 47 years

Rising inflation has emerged as a critical concern for Pakistan's economy, already facing depleting foreign exchange reserves.

Experts have warned that the country will see prices of food items rise further after record monsoon rains in the south and southwest Pakistan along with glacial melt in northern areas triggered flash flooding that has impacted nearly 33 million people in the South Asian nation of 220 million, sweeping away homes, crops, bridges, roads and livestock in damages estimated at $30 billion.

Meanwhile, the JS Global report stated food inflation will remain on an upward trajectory.

“Food inflation is expected to remain on an upward trajectory, with 275bps MoM increase in Sep-2022, led by a further sharp rise in tomato prices in the monsoon season.

SBP-held foreign exchange reserves decline $176mn to $8.62bn

“For perspective, tomato prices have jumped by 100% in two months, out of which +40% has been recorded in Sep-2022. Egg prices have jumped 24% since Jul-2022, from which 15% has been observed this month. Also, heavy-weight milk and wheat prices witnessed a ~4%/8% MoM uptick respectively, cumulatively contributing ~150bp in the expected CPI growth,” said the report.

The report highlighted that a 20% decline in ex-refinery prices of POL products has emerged as a window of opportunity for the government to increase levies without further burdening inflation readings.

“Having said that, the continued weakness in PKR, Wholesale Price Index (WPI) reaching 41.2% and aftermath of floods are likely to maintain pressure on national CPI in the coming months,” said JS Global.

“Moreover, among the top contributing constituents of the WPI basket are also milk (11.5% weight) and cotton & fibre crops (10.6% weight), which are expected to face supply constraints post damage of wheat stocks, cotton, rice and vegetable crops and livestock in the recent flash floods,” it added.