Dubai June 2 2023: Pakistan’s inflation reached a record high in May but that’s unlikely to prompt the central bank to raise rates further in June, says Bloomberg.
Bloomberg think this reading marks the peak and high base effects from a year earlier should push inflation back clown from this month.
“With real rates having turned positive on a month forward-looking basis, the State Bank of Pakistan has already likely lifted rates high enough and should wait and see the impact of its previous tightening, in our view” writes Bloomberg.
CPI inflation climbed to 38% year on year in Hay, up from 364% in the month prior, That was below Bloomberg estimate of 38.6% and above the consensus forecast of 37.6%. Food, housing and transportation remain the biggest contributors to the price gains.
Food inflation inched up to 49% in May from 48% in April. A dollar shortage constraining imports has compounded the supply disruption from heavy floating and kept faced costs elevated. Food prices are set to remain high. Soaring wholesale food prices which rose by 41-% year on year in April – will likely keep upward pressure on retail prices with a lag.
Higher electricity charges pushed up housing category inflation to 203% year on year in May from 17% in April. The transportation category inflation showed to 53% in May from 57% in April on lower gasoline pump prices- Softer global crude prices are helping ease pressure on domestic fuel prices.
Even as inflation has peaked, it will likely remain elevated in coming months on high food prices and the weak currency which is making imports expensive. We expect inflation to average 29% in fiscal 2023 and 24% in the year starting July, says Bloomberg.
We see the SBP keeping rates on hold at 21% through December. However, there is an upside risk to our inflation and rates forecasts if the aid from the International Monetary Fund does not arrive and rupee falls sharply, says the report.
