Inflation may touch 8 percent in July

The analysts expect the Consumer Price Index (CPI) inflation to clock in at 7.99 percent during July 2013, Year-on-Year.
This would be compared to 9.6 percent of last fiscal year’s in July. “On monthly basis, we expect CPI inflation to remain high (climbing up by 1.77 percent MoM), owing to a growing trend witnessed in food prices due to Ramadan (seasonal affect),” viewed InvestCap analyst Abdul Azeem.
Food inflation is expected to stay above 2.5 percent MoM, given the increase in perishable items, fresh vegetables and fresh fruits, he added.
In addition to that, he said, price increase in commodities such as wheat, eggs, rice, tea and meat is foreseen to keep inflation on t he higher side during the month.
On the other hand, one of the heavy weight items, House Rent Index adjustment of 1.75 percent MoM would also be reflected in the current month’s figures, resulting in a significant increase in inflation during Jul-13. Furthermore varied trends in different categories are expected to be witnessed, including increase in GST by 1 percent to 17 percent, rising trend in international oil prices by 3 percent MoM resulting increase in local oil prices as petrol and diesel prices increased by 9 percent MoM and 2 percent MoM respectively and depreciation in Pak Rupee against US dollar also causing rising trend in imported inflation. Going forward, he said, increase in the prices of electricity, gas and oil would be major contributors to inflation. On electricity front, post IMF dialogue the government is planning to the reduce gap between cost of generation and selling price of electricity to keep circular debt under control, therefore a significant increase in power tariff is expected to result in increased inflation.
“Furthermore, increase in local gas prices has also been on the cards, we expect significant pressure exerted from the same, such an increase is expected to materialize in Aug-13. Rise in international oil prices (Arab Light) by 3 percent MoM in Jul-13 is expected to be reflected in the coming months therefore further fuelling the inflation. Persisting depreciation in PKR against USD owing to rising demand is also expected to pose further challenge for inflation going forward.”
Going forward, Azeem anticipates that a controlled inflation would prevail till 1HFY14. “However, we see inflation to level yet again on higher side in 2HFY14,” he said, adding, “Therefore, for FY14 we anticipate CPI to stay between 9-9.5 percent.”