Pakistan Bureau of Statistics issued July-2019 CPI Inflation figure which stands at 10.32% in line with The Mint PK forecast published earlier. The headline CPI inflation hit a six-year high of 10.32%YoY in Jul’19 as compared to 8.89%YoY in the June-2019 marking a 2.28% monthly increase. The inflation was last seen in double digits in November-2013.
The rise in inflation was primarily contributed by One time utility rate adjustments (contributing 26% to overall increase), recently announced tax measures in the budget ( contributing 23%), quarterly revision of housing rent index ( contributing 18%) and higher fuel prices (9%) were the key factors, leading to monthly inflation figure to the highest level in the past few years.
A Break-down of Inflation revealed that the majority (52%) of Inflation was contributed by Housing and Utilities, followed by Food prices(15%) and Transport (12%).
While the July-2019 inflation has come out at multiple-year high level, it will still remain high up till December-2019. However, pro-active monetary tightening, tight parallel fiscal policy and reduced borrowing of Government from SBP are expected to contain inflation after December. That said, the July-2019 Inflation seems relatively soft as compared to the Interest Rate, as Real Interest Rate remains at ~3.5% giving credence to the belief that SBP will hold Interest Rates in next Monetary Policy Statement in September.
The risk to outlook emanates from Currency Depreciation and Current Account Movement.