Inflation Will Reach 26% Due to Food Scarcity: Report

There is going to be another month of 25 percent upward year-on-year (YoY) CPI reading, where CPI for September 2022 is expected to clock in at 26.4 percent.

While this would be lower than August 2022’s readings of 27.3 percent, JS Global expects the inflation trend to remain on the higher side owing to higher food inflation and ongoing second-round impacts.

On a month-on-month (MoM) basis, CPI is expected to witness an uptick of 1.4 percent. Food inflation is expected to continue to remain on an upward trajectory, with a 275 basis points MoM increase in September 2022, led by a further sharp rise in tomato prices in the monsoon season. For perspective, tomato prices have jumped by 100 percent in two months, out of which +40 percent has been recorded in September 2022.

Egg prices have jumped 24 percent since July 2022, from which 15 percent has been observed this month. Also, heavy-weight milk and wheat prices also witnessed around ~4-8 percent MoM uptick respectively, cumulatively contributing around 150 basis points to the expected CPI growth, said the report.

FY23 CPI to face pressures on multiple fronts

The more than 20 percent decline in ex-refinery prices of POL products has been a window of opportunity for the government to increase levies without further burdening inflation readings, stated the report.

Having said that, the continued weakness in PKR, WPI reaching 41.2 percent, and the aftermath of floods are likely to maintain pressure on national CPI in the coming months, added the report.

The report further stated that ” These are also the key risks to our FY23 average CPI assumption of 21 percent. To recall, in the last devastating floods witnessed during 2010, food inflation soared from 12.8% in Jul-2010 to 21.2% in two months, led by two 5 percent upward MoM jumps.”

Moreover, among the top contributing constituents of the WPI basket are also milk (11.5 percent weight) and cotton and fiber crops (10.6 percent weight), which are expected to face supply constraints post damage to wheat stocks, cotton, rice, and vegetable crops and livestock in the recent flash floods.

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