(CTN News) – As a result of lower food prices, the Consumer Price Index-based inflation in October is expected to hit 26.4%, a much lower level than the 31.4% recorded in September, according to brokerage house JS Global.
Our team is currently preparing a preview of the Consumer Price Index for October-2023, where we expect the headline inflation rate to slow to 70 basis points month-over-month (MoM), which is a considerable decrease from the last 12-month average of 230 basis points MoM.
As a result, this would take the CPI for October-2023 to 26.4% – the lowest inflation rate since January 2023,” said JS Global.
‘On a monthly basis, the slowdown is expected to be due to a drop in petroleum product prices, which is likely to have trickled down to a drop in food prices – contrary to historical practices, the report said’.
Clearly, food inflation is expected to fall by 89 basis points on a monthly basis, according to the data. As for the restaurant segment, the same is not expected to repeat under the 7% weight, which is expected to experience a 145bps increase in inflation from month to month.
The breather in food prices is also expected to be waned by the quarterly house rent adjustment and the MoM increase in electricity prices, which will result in a 4.7% MoM increase in the housing, water, electricity, gas and fuels segment (with a 23% weighting) indicating a 4.7% MoM increase in food prices.
The brokerage house pointed out that the reduction in POL prices accounted for only a small part of the impact.
Despite the absence of negative surprises to the CPI, the brokerage house forecast that the average CPI will be 19% for the next 12 months, reflecting a positive real effective interest rate of 300bps.
As well as this, the newspaper pointed out that the base effect had been complemented by the recent appreciation of the Pakistani rupee against the US dollar and some relief in the international oil price situation.
There are some quarters of the market that are now expecting an earlier start to the monetary easing cycle that was previously anticipated, as the impact of the higher base effect is becoming more evident in the coming months, especially beyond January 2024,” noted JS Global.
According to our base case scenario, the first cut is expected to be announced in March 2024, when the real effective rates will turn positive on a spot basis. However, an earlier cut cannot be ruled out,” it said.
In their analysis of the possibility of an earlier rate cut, JS Global based its assessment on one of the key factors that the State Bank of Pakistan considers when setting the monetary policy, namely the forward-looking Consumer Price Index.