Inflation likely to hit fresh peak, clock in at over 38%, says brokerage house

Inflation in Pakistan is likely to break further records, and is projected to reach 38% year-on-year (YoY) in April against 35.4% recorded in March, Ismail Iqbal Securities, a brokerage house, said in a report on Friday.

On a month-on-month (MoM) basis, inflation is estimated at 3.6%, following a 3.7% increase in March.

“The surge on MoM basis is mainly due to higher wheat prices, clothing, and quarterly house rent revision,” said the brokerage house.

“Meanwhile, core inflation is also expected to remain around 2.5% MoM, reflecting the impact of supply chain issues, PKR devaluation, and second-round effects of increase in energy prices,” it added.

The brokerage house said inflation is likely to remain elevated in May, estimated at around 40%. “For Jun-23, inflation is expected to decrease due to high base effect. However, the trajectory would depend upon the annual budget 2023-24, which is expected to be inflationary,” said the report.

The State Bank of Pakistan (SBP) Monetary Policy Committee (MPC) is currently scheduled to meet on June 12, 2023.

“Considering persistent inflationary pressures, and absence of an IMF program, another rate hike cannot be ruled out. The SBP might look to hold another earlier than-scheduled MPC meeting,” it added.

The Consumer Price Index (CPI)-based inflation clocked in at 35.4% on a year-on-year basis in March 2023 compared to an increase of 31.5% in the previous month and 12.7% in March 2022.

“This is the highest year-on-year inflation since the available data i.e. July 1965,” said Arif Habib Limited (AHL) in a note back then.

Pakistan’s CPI inflation reading in March clocks in at 35.4% YoY

The reading prompted the central bank to raise the key interest rate by 100 basis points in its April 4 meeting, after it had earlier increased it by a massive 300 bps.

Economic stress

High inflation is just one of the issues currently putting Pakistan’s economy in distress as it also faces a balance of payments crisis.

The South Asian country has been faced with a barrage of woes with a perceived default risk and a downgrade by international rating agencies reflecting the state of the economy that has also had to bear major political turmoil and frequent change in key leadership.

The International Monetary Fund (IMF) funding is critical for Pakistan to unlock other external financing avenues, and the two have been negotiating since early February to resume $1.1 billion in funding held since November, part of the bailout agreed upon in 2019.