Morning Call about Inflation – Arif Habib Limited

Karachi, July 27, 2012 (PPI-OT): Headline inflation to be 10.9% in Jul-12

Arif Habib Limited estimates CPI based inflation for July’12 to be 10.9% YoY
The price indices for the month of July-12 are expected to be released in the upcoming week.

According to Arif Habib Limited estimates Consumer Price Index (CPI) to be 10.9% YoY in July-12, 0.38% lowers than Jun-12 figure of 11.28% YoY. The Sensitive Price Index (SPI) presented a continuous weekly rise in July-12 projecting increase of 0.64% in the week ended on 19th July 2012. However, Arif Habib Limited believes the monthly overall inflation is mainly food prices driven.

Inflationary pressures remaining prominent due to rising food price
Overall inflation in July-12 prices, with the advent of Ramadan, was ignited by food prices that surged in most parts of Pakistan. Since first three weeks of July have witnessed a marginal increase in SPI, Arif Habib Limited believes that increase in food prices is more of a temporary effect and will likely fade away post Ramadan. Although the government has proposed PKR 2.5 billion subsidy on commodities at the utility stores to consumers but still austere measure remain to be taken to curtail overall inflated prices in the market.

Oil prices to provide cushion to CPI
In the last week of Jun-12, international oil prices have shown quite fluctuation remaining mainly on the lower end, averaging at USD 93.85/ bb. Consequently, a decline was seen in local POL product prices as it was evident from a PKR 4.5 decrease on petrol in the beginning of July however it was revised slightly upward (PKR 0.91 effective from mid of the month). As per Arif Habib Limited’s analysis, oil and inflation are positively correlated, thus major change in domestic petroleum prices will consequently provide cushion to the overall CPI.

As July-12 marked beginning of the holy month of Ramadan, going forward, it is likely that prices of food items will remain on the higher side in the month of August. Thus, the full impact of these inflated prices will be evident in the CPI of August which may translate into a rise in CPI.