Amid the increasing cost of food items, a weakening rupee, and aftershocks of devastating floods, the inflation rate in Pakistan is expected to be over 26% in September, according to 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%,” as per the report of JS Global, the largest Broking and Investment Banking firm in Pakistan.
“While this would be lower than Aug-2022Â’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.”
Increasing inflation has emerged as critical distress for Pakistan’s economy, already facing depleting foreign exchange reserves.
Meanwhile, experts have warned that the country will further experience an increase in prices of food items after record monsoon rains in the south and southwest Pakistan as well as glacial melt in northern areas triggered flash flooding that has affected almost 33 million people in the South Asian nation of 220 million, eroding homes, bridges, crops, roads and livestock in damages estimated at $30 billion.
The JS Global report also stated that 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.”
?“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,” the report added.
The report further identified that a 20% decrease in ex-refinery prices of POL products has emerged as a window of opportunity for the government to surge 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,” JS Global said.
“Moreover, among the top contributing constituents of the WPI basket are also milk (11.5% weight) and cotton & fiber 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,” the report added.