May 2023 CPI headline inflation in Pakistan is likely to clock in at 38.2%
ISLAMABAD: Headline inflation is estimated to reach record high in May 2023 to clock in at 38.2% as against 36.4% in April 2023. This will take 11MFY23 inflation reading to 29.0% versus 11.3% in 11MFY22.
The increase in May CPI is mainly led by food and alcoholic beverages (49.2% YoY), housing index (21% YoY) and transport index (55.4%).
On MoM basis, inflation is expected to increase by 1.7% vs. 2.4% in preceding month. The MoM increase is primarily driven by 1.6% increase in food index. We expect average inflation for FY23 to clock in at 29.2% vs. 12.1% in FY22.
Within the SPI basket, items that recorded significant increase in prices during the period under review are as follows, Footwear (31.8%), Potatoes (20.2%), Chicken (18.8%), and Tea (9.3%). On the flip side, prices of following items eased off during the month, Onions (35.4%), Tomatoes (26.4%), Fresh vegetables (9.8%), and Fresh fruits (3.6%).
Experts expect headline inflation to ease off from June 2023, primarily due to high base effect. However, any abrupt movement in PKR/USD parity remains a key risk as the gap between official and unofficial rate has widened in last couple of weeks.
On the flip side, wheat price in domestic market has fallen from its peak of PKR5,500-6,000/40-kg to PKR4,500/40-kg. The increase in local market was primarily due to hoarding in anticipation of further increase in prices.
To note, flour prices in local market have not witnessed any major decline. In current situation, administrative action from government can put pressure on prices in local market which can provide a much needed respite.
To highlight, wheat flour has weight of 3.01%/3.43% in urban and rural baskets, respectively.
Real rates are in deep negative territory and is expected to clock at 17.1% with May 2023 expected CPI reading of 38.2%. Experts forecast inflation print to start receding from next month on the back of high base effect and expected to fall below 20% mark in Feb 2024.