CPI inflation surges faster than expected in October to 26.6%

• CPI inflation up 4.7% compared to fall of 1.2% in Sept 2022.
• Numbers mostly in line with the market expectations.
• Impact of the high-base effect to kick in down the line.

ISLAMABAD: Accelerating faster than anticipated, Consumer Price Index (CPI)-based inflation for October 2022 surged to 26.6% year-on-year,  latest data showed, chiefly fueled by high-priced food and a hawkish monetary outlook. 

According to the Pakistan Bureau of Statistics (PBS), consumer prices rose 4.7% compared to a fall of 1.2% in September 2022 month-on-month. 

The inflation is not far from a 47-year high.

The inflation crossed 20% in June 2022, topping the 47-year high of 27.3% in August 2022 year-on-year.

PBS in a statement said the rise in consumer prices in October from last month was boosted mainly by electricity and food prices, while the higher CPI from October last year was caused by rising costs of food and fuel.

The numbers are in line with the market expectations.

The market was mostly bracing for the headline inflation to increase by 4% month-on-month. 

Moreover, food inflation swelled 36.2% year-on-year, while transport prices sped up 53.4%, clothing and footwear prices rose 18.3% and housing, water and electricity costs rose 11.9%.

Brokerage Ismail Iqbal Securities had projected the inflation to clock in at 25.7% as against 23.2% in September. “Overall, we expect FY23 average inflation at 22%. The sequential increase will be led by normalisation of electricity tariff, quarterly house rent revision, and higher perishable food prices,” the brokerage said in a report. 

“The impact would be diluted to some extent by a reduction in petroleum prices,” it added.

However, analysts see the impact of the high-base effect in December, while the announcement of a number of subsidies on several items amid cooling international commodity markets might reduce inflation pressure to around 22-23% in November.

The CPI inflation in urban areas was registered at 24.6% year-on-year in the month under review as against an increase of 21.2% in September 2022 and 9.6% in October 2021.

It rose to 4.5% in October 2022 month-on-month compared to a fall of 2.1% in the previous month and an uptick of 1.7% in October last.

In rural areas, CPI inflation touched 29.5% year-on-year in the outgoing month vis-à-vis an increase of 26.1% in the previous month and 8.7% in October 2021.

It, month-on-month, increased to 5.0% in October 2022 as compared to an increase of 0.2% in the previous month and an increase of 2.2% in October last year.

Increasing inflationary pressures remain a major threat to the economy amid eroding foreign exchange reserves.

State Bank of Pakistan (SBP) in its Monetary Policy Committee (MPC) meeting held the interest rate unchanged, citing that the prevailing stance sustains just the right balance between managing inflation and maintaining the growth rate post-floods.

“On the one hand, inflation could be higher and more persistent due to the supply shock to food prices, and it is important to ensure that this additional impetus does not spill over into broader prices in the economy. On the other, growth prospects have weakened, which should reduce demand-side pressures and suppress underlying inflation,” MPC had said.

According to CPI numbers, inflation increased the sharpest in transport, food, housing, and restaurant and hotel groups in the outgoing month.

Persistently high inflation has severely strained the economy which is also under pressure from falling foreign exchange reserves, the rupee rout, and a yawning current account deficit.

SBP-held foreign exchange reserves stand at $7.4 billion, hardly enough to cover one month’s imports.

Devastating floods in August claimed more than 1,700 lives, while multiplying the economic problems by wiping out crops and infrastructure.