RECORDER REPORT

KARACHI: Wheat price disruption is expected to add 57 bps to June inflation, and the inflation rate is likely to settle at 8.49 percent by the end of the month of June 2020 as compared to 8.00 percent in June 2019 and 8.22 percent in May ’20, respectively, analysts said.

“We expect CPI to increase on the back of drastic surge in prices of tomatoes, spices, eggs and wheat flour due to higher demand of essential food items along with supply fear of tomatoes and wheat in the market,” Arsalan Hanif, an analyst at Arif Habib Limited, said.

However, reduction in prices of petroleum products by Rs7 a liter and significant decline in onions and fresh vegetables prices kept the inflation contained, he added.

This will take the FY20 average inflation to 10.76 percent as compared to 6.80 percent in FY19. On a yearly basis, increase in inflation in June 2020 will likely be led by tobacco (up 16.5 percent), food (up 13.9 percent), miscellaneous (up 11.1 percent) and clothing and footwear (up 10.1 percent).

On an MoM basis, CPI reading is expected to increase by 0.8 percent attributable to increase in food index (up 2.7 percent on MoM basis) while a decline in transport and housing index by 3.7 percent and 0.4 percent MoM respectively is expected to cushion the impact of rise in food prices.

This will increase the average monthly inflation by 0.69 percent for FY20 as compared to minus 0.52 percent for FY19.

As per the Sensitive Price Index (SPI) data published by the Pakistan Bureau of Statistics (PBS), average prices of tomatoes, spices, eggs and wheat flour are expected to register a jump of 30 percent, 26 percent, 19 percent and 16 percent respectively on month on month basis while decline in prices of essential food items like onions (down 17 percent MoM basis), fresh vegetables (down 8 percent MoM), fresh fruits (down 7 percent MoM), and pulse gram (down 6 percent MoM) is expected to keep the food index contained.

“We expect inflationary pressure to increase in the upcoming month due to significant increase in international oil prices which will lead to likely revision in local petroleum prices,” Arsalan Hanif said.

“On the other hand, further increase in prices of wheat and perishable items will increase our inflation forecast,” he added.

However, the Punjab government had announced strict actions against hoarders and profiteers that could help keep inflation under control.

“We anticipate inflation during the month of July 2020 to settle at 7.8 percent, up 1.2 percent on MoM, due to the aforementioned reasons and high base effect.”