May’20 inflation to settle at 8.40% YoY compared to 8.38% in May’19 and 8.53% in Apr’20, respectively. We expect CPI to increase on the back of drastic surge in prices of Chicken, Fresh Fruits, Potatoes and Milk due to smart lockdown which increased demand of essential food items along with Ramadan effect on food prices.
However, massive reduction in prices of petroleum products by PKR 15/liter and significant decline in vegetable prices kept the inflation contained. This will take the 11MFY20 average inflation to 10.99% compared to 6.70% in 11MFY19.
On a yearly basis, increase in inflation in May’20 will likely be led by Alcoholic Beverages & Tobacco (+20.2% YoY), Food (+13.8% YoY), Miscellaneous (+12.4%) and Health (+10.2%YoY). On a MoM basis, CPI reading is expected to increase by 0.5% attributable to increase in food index (2.7% MoM).
Whereas, decline in Transport and Housing index by 7.8% and 0.4% MoM, respectively is expected to cushion the impact of rise in food prices. As per Sensitive Price Index (SPI) data published by the Pakistan Bureau of Statistics (PBS), average prices of Chicken, Fresh Fruits, Potatoes and Milk are expected to register a jump of 49%, 25%, 22%, and 4% MoM, respectively. While, decline in prices of essential food items like Onions (-23% MoM), Eggs (-14% MoM), Tomatoes (-11% MoM), and Fresh Vegetables (-8% MoM) is expected to keep the food index contained. Analysts expect inflationary pressure to ease off in the upcoming month with the conclusion of Ramadan which might trigger a reversal in prices of chicken and fresh fruits (usually they undergo a jump prior to the holy month).
On the other hand, further reduction in prices of petroleum products will also help to keep inflation contained. It is anticipated that the inflation during the month of Jun’20 to settle at 8.30 percent due to aforementioned reasons and high base effect.