AKD Securities Limited Equity Research – Daily Report

Karachi, March 26, 2019 (PPI-OT): Pakistan Economy: Headline inflation to hit ~5yr high, expect 25-50bps rate hike

Headline inflation continues to gain momentum, with the upcoming Mar’19 reading expected to round up at 9.01%YoY vs. 8.21%YoY in Feb’19 and 3.24%YoY in Mar’18. Sequentially, the CPI index is expected to move up 1.04%MoM.

Rising food prices particularly perishable items (food index: up 2.01%MoM) and higher fuel cost (up 3.7%MoM on avg.) as a result of higher international oil prices are the key driving factors, lifting the monthly read higher.

Importantly, core inflation is likely to see some moderation, with Mar’19 NFNE reading of 8.43%YoY vs. 8.73%YoY in Feb’19, a potential indication of cost-push inflationary pressures (i.e. pass-through of rupee depreciation) losing steam.

Awaiting forthcoming monthly inflation to confirm our stance, we flag moderation in core inflation as being unsustainable, with the second round of utility price hike (i.e. gas and electricity) expected to keep both core and headline inflation elevated over the medium term.

With real interest rates once again narrowing to 1.1% (a level last seen in Dec’17) and lack of parallel fiscal adjustment, we continue to see further need for monetary adjustment and expect the MPC to raise the policy rate by 25-50bps in the upcoming monetary policy announcement due later this month.

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AKD Securities Limited Equity Research – Daily Report

Karachi, March 26, 2019 (PPI-OT): Pakistan Economy: Headline inflation to hit ~5yr high, expect 25-50bps rate hike

Headline inflation continues to gain momentum, with the upcoming Mar’19 reading expected to round up at 9.01%YoY vs. 8.21%YoY in Feb’19 and 3.24%YoY in Mar’18. Sequentially, the CPI index is expected to move up 1.04%MoM.

Rising food prices particularly perishable items (food index: up 2.01%MoM) and higher fuel cost (up 3.7%MoM on avg.) as a result of higher international oil prices are the key driving factors, lifting the monthly read higher.

Importantly, core inflation is likely to see some moderation, with Mar’19 NFNE reading of 8.43%YoY vs. 8.73%YoY in Feb’19, a potential indication of cost-push inflationary pressures (i.e. pass-through of rupee depreciation) losing steam.

Awaiting forthcoming monthly inflation to confirm our stance, we flag moderation in core inflation as being unsustainable, with the second round of utility price hike (i.e. gas and electricity) expected to keep both core and headline inflation elevated over the medium term.

With real interest rates once again narrowing to 1.1% (a level last seen in Dec’17) and lack of parallel fiscal adjustment, we continue to see further need for monetary adjustment and expect the MPC to raise the policy rate by 25-50bps in the upcoming monetary policy announcement due later this month.

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