LAHORE – The rising house rent impact in CPI is likely to pace up inflation by 7.93 per cent in January as compared to the corresponding period of last year. With the end of 2QFY13, experts are witnessing an impact of changes in the house rent in Jan, which contributes almost 23 per cent to the total CPI basket. The house rent impact for the period 1HFY13 has on average registered an increase of 6.5 per cent annually. Continuation of this rising trend should exert upward pressure on the CPI inflation, financial experts from AHL observed.
The Pakistan Bureau of Statistics (PBS) will be releasing inflation figures for the month of Jan’13 in few days. Consumer Price Index (CPI) based inflation for the month is expected to register a 7.7 per cent YoY rise compared to a rise of 7.93 per cent YoY recorded last month (Dec’12). This translates into monthly uptick of 1.3 per cent compared to last month’s 0.2 per cent MoM.
This would bring average inflation (Jul-Jan13) at 8.24 per cent YoY against 10.78 per cent YoY witnessed same period last year, which would be way below government’s annual target of 9.5 per cent for FY13. Rising food and energy prices could be cited as the major reasons for higher inflation in Jan ’13. Experts largely keep our full-year FY’13 inflation target at 8.9 per cent YoY.  As indicated by the SPI data, rising food prices are expected to have an adverse impact on Jan’s inflation. A rise of ~2 per cent MoM in SPI signals that this month’s higher inflation numbers would be driven by the higher food prices, particularly due to perishable food items. Along with rise in commodity prices, like wheat, seasonality effect will also come into play. 1HFY13 has usually depicted higher food prices, historically. On the other hand, a jump in the gas prices has pushed consumer prices up (6 per cent MoM) in Jan’13, threatening to further slow the already sluggish economy. We expect an inflated trickledown effect under transportation category.
The recent stats released by the SBP for broad money show an alarming M2 figure of 7 per cent as compared to 4.3 per cent same period last year. It is known that higher money supply has inflationary impacts on the economy, thus, we expect to see it in the month of Jan also.
In our view, going forward, growing money supply and higher fiscal deficit implies upside risk to interest rates if borrowing rises to finance it.
Inflation expectations among investors, as signaled in the recent T-Bill auction, have also been on the rise. Lately, the participation of investors has been inclined more towards longer tenure instruments hinting that the interest rates might remain sticky in the medium term. The higher monthly inflation poses no serious threat to average inflation of FY13 as it is expected to remain well below the govt target of 9.5 per cent.