Inflation reading falls slightly in September, clocks in at 23.2%

Consumer Price Index (CPI)-based inflation retreated slightly in September 2022 and clocked in at 23.2% on a year-on-year (YoY) basis, primarily due to relief provided by the government in fuel charges adjustment (FCA) in electricity bills. On a month-on-month basis, inflation fell 1.2%, showed data released by the Pakistan Bureau of Statistics on Saturday.

In June 2022, the inflation reading crossed the 20% mark, surging to an over 47-year high level of 27.3% in August 2022 on a year-on-year (YoY) basis.

Speaking to Business Recorder, Ismail Iqbal Securities Head of Research Fahad Rauf said the market was expecting a drop in inflation for September.

“We had expected CPI to amount to 24.7% on the back of major relief given by the government on electricity expenses,” he said.

At the end of August, the government of Pakistan had deferred FCA for households consuming less than 200 units of electricity per month. Later, Prime Minister Shehbaz Sharif expanded the relief measure to cover households using 300 units or less per month.

PM enhances FCA waiver to 300 units

“The government deferred FCA and now it will collect the amount in instalments spread over six-month timespan,” said Rauf. “The housing segment drove the decline in inflation majorly due to the relief package. The Electricity group saw a 65% fall in inflation.”

However, he lamented that food inflation saw a sharp increase during the month.

Food inflation rose due to nationwide floods in Pakistan that destroyed crops as well as farmlands. Initially, the disaster sent the prices of tomatoes and onions soaring. However, the government resorted to import the two commodities from abroad, which eased the pressure partially.

Rauf also said a decrease in global oil price did not contribute to decline in inflation “because the relief was not passed on to the public in September.”

The government passed on the relief for the first fortnight of October, hence it will reflect in this month’s CPI reading.

Endorsing Rauf’s view, Pak-Kuwait Investment Company Head of Research Samiullah Tariq told Business Recorder that relief on electricity payments dragged CPI reading lower. But he said “the public will pay the amount in instalments over next few months, therefore inflation is expected to spike then”.

Arif Habib Limited Head of Research Tahir Abbas stated that if the government had not provided relief on electricity, then inflation reading would have been 26.5% in September.

Meanwhile, Lakson Investments Chief Investment Officer Mustafa Pasha said that “with petrol and diesel prices slashed and recovery of rupee, inflation data may continue to improve in the coming weeks and months.

“Chances of a status quo in October are rising,” he said in a post on social media.

Breakup of numbers

On a year-on-year basis, the transport sector saw a lofty 64.5% inflation followed by tobacco (32.67%), food items (31.7%), furnishing and household equipment maintenance (25.06%).

The inflation in urban areas increased to 21.2% on year-on-year basis last month compared to an increase of 26.2% in the previous month and 9.1% in September 2021.

On a month-on-month basis, it decreased by -2.1% in September 2022 as compared to an increase of 2.6% in the previous month and an increase of 2.0% in September 2021.

CPI in rural areas increased to 26.1% on a year-on-year basis in September 2022 as compared to an increase of 28.8% in the previous month and 8.8% in September 2021.

On month-on-month basis, it increased by 0.2% in September 2022 as compared to an increase of 2.2% in the previous month and an increase of 2.3% in September 2021.