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Morning Call about CPI Review – Arif Habib Limited

Karachi, October 02, 2012 (PPI-OT): CPI at 33 months low; 100bps cut in policy rate likely

Inflation eases to 8.79% YoY in September, averages 9.3% in 1QFY13
The headline inflation for the month of Sept-12 painted a rise of 8.79% YoY, in line with Arif Habib Limited’s expectation of 8.71% YoY.

According to Arif Habib Limited, on a MoM basis the index inched up by 0.8% from CPI of 9.1% YoY in Aug-12. In fact, the Sept-12 inflation prints were lower than market consensus, with a median of 9%. This brings the 1QFY13 headline CPI inflation to increase by an average of 9.3%. Major reasons for lower than market-expected price inflation is decline in overall food prices, seconded by high base effect.

Overview on food and non food items’ prices in Sept-12
The Perishable food items registered a 1.5% MoM rise, while Non perishable food prices posted a MoM increase of 0.6%. This resulted in a rise of 0.7%MoM in ‘Food and beverages’ category. On the other hand, the WPI jumped up by 7.8%YoY, which is a representation of higher oil prices, with a spillover on to transportable goods up by 2.2% MoM mainly in petroleum products.

Price behavior in 1QFY13: A review
Inflation averaged 9.3% YoY for the 1QFY13, till now, remaining well within the government’s FY13 target of 9.5%. Furthermore, the average monthly increase in CPI during this period has remained at 0.8% a slight improvement from 1.2% average monthly inflation witnessed in 1QFY12. Overall, monthly inflation of both food and non food showed downward trends throughout the period under review. FY13 started with a 1.8% MoM rise in food prices but gradually has come down to 0.7% MoM by the end of the first quarter. On the other hand, non food items varied in the range of -1.7% to 0.9% MoM, which was primarily was due to fluctuating oil prices, peaking at USD 116/bbl in mid of Sept-12.

100bps cut likely in discount rate
Arif Habib Limited believes that controlling inflation still remains a challenge for the economy, keeping in view the government borrowing for meeting expenses and rising oil prices. However, Arif Habib Limited expects this single digit CPI to continue till the end of Dec-12, mainly on account of higher base effect, which shows the possibility of a 100bps reduction in discount rate in coming Monetary Policy.

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