July inflation forecast at 3.8pc

KARACHI: The consumer inflation is forecast to edge up slightly in July due to higher food prices, but not by enough to prompt a policy response from the State Bank of Pakistan (SBP), analysts said on Thursday.

The government is scheduled to announce the consumer inflation data on Monday.

Analysts forecast the year-on-year inflation number for July between 3.7 and four percent as food inflation and house rent rose during the month. They expect a one percent rise in the month-on-month CPI inflation.

“We think the inflation reading will be in the range of 3.7 and 3.8 percent,” said Adnan Sami Sheikh, analyst at the Taurus Securities.

Prices of several vegetables sharply increased in July. Particularly price of tomatoes almost doubled during the month to Rs83/kg from Rs43/kg.

“We look for the headline inflation to inch up, reflecting the modest rebound in perishable food price pressures,” said an analyst. “Imported inflation remains in check on the back of a stable rupee and subdued crude prices.”

Analysts said the government, however, refrained from passing on the impact of high international oil prices on to consumers, diluting the energy factor’s affect on the inflation number.

“Nevertheless, government’s decision to absorb the impact of higher international oil prices through reduction in petroleum levy shall keep inflation towards the downside,” said analyst Fatiq Bin Khursheed at Optimus Securities.

Khursheed expects the CPI inflation reading for the current fiscal year to cross five percent because of mainly favourable base effect.

“Though benign inflation is likely to persist for next few months, we expect the number to cross five percent by the end of the fiscal 2016/17 as aggregate demand picks up,” he added.

In June, the CPI inflation was recorded at 3.2 percent. On month-on-month basis, it increased by 0.6 percent in June as compared to decrease of 0.2 percent in May and an increase of 0.6 percent in June a year ago.

The annual inflation was recorded 46-year low at 2.86 percent for 2015/16. It was 4.53 percent in 2014/15. The Pakistan Bureau of Statistics registered the inflation at 1.6 percent in the fiscal year 1968/69.

Analyst Zeeshan Afzal at the Insight Securities said the central bank might maintain the status quo in its key policy rate in the upcoming monetary policy. “Though current low inflation suggests some room available for monetary easing, we expect a status quo this time as the inflation reading is now on upward trajectory while there are fears of trade deficit accumulation,” he said.