Inflation estimated to register at 8.7% during Apr’20

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After a 9M period of double-digit inflation, CPI is expected to enter single digits and register at 8.7% during Apr’20 against 10.24% recorded during Mar’20 and is expected to average at 11.3% during 10M FY20. On a monthly basis, inflation is estimated to recede by 0.67% primarily due to subdued food inflation and the transport index. We anticipate food inflation to subside by 2.1% MoM primarily due to lower prices of Chicken (-21% MoM), Milk (-3% MoM) and Onions (-33% MoM). In addition, the transport index is expected to fall by 5.9% MoM likely due to the PKR 15/liter cut in domestic fuel prices.

Annotation 2020 04 30 201314

Inflation outlook remains benign despite sharp monetary easing

We anticipate inflation to remain subdued for the remainder of FY20 despite an additional 200bps reduction in interest rates. Our stance is primarily underpinned upon low fuel prices and considerable demand contraction amid the lockdown, keeping a check on prices. Ogra has already recommended Rs.20-30 per litre cut in petrol prices starting 1st May. Food inflation, however, is expected to inch upwards due to Ramzan, limiting potential downside to inflationary trends in the coming months. We estimate inflation will likely average 10.65% during FY20, slightly below SBP’s forecast of 11%-12%.

Annotation 2020 04 30 201349