By: Abdul Azeem
+92-21-35205520-22 (Ext 8633)
Invest Capital Markets Limited
In today’s Value Seeker we present our forecast of Consumer Price Index (CPI) for the month of December-14 which is expected to unveil on the 1st of January, 2015. Our analysis coupled with our outlook on the same is as under.
CPI to settle at 4.90%YoY in Dec-14
The Consumer Price Index (CPI) is expected to stay at 4.90%YoY in Dec-14 as compared to 3.96% during Nov-14 and 9.18% in Dec-13. On monthly basis, an easing trend is likely to be witnessed as CPI is expected to shrink by minimal -0.43%MoM in Dec-14 v/s -0.52%MoM in Nov-14. On moving average basis CPI is anticipated to remain below 7% by staying at ~6.19% for Jul-Dec-14.
The low CPI is mainly due to decline in Food & Non-alcoholic Beverages Segment by 0.87%MoM. In this segment, Potato and Onion prices (contributing 0.4% and 0.5% weights in total index) are expected to fall by 29%MoM and 22%MoM respectively. Moreover, a sharp decline in Fresh Fruit prices by 3.4%MoM is expected to be another contributor behind the decline in CPI during the month.
Furthermore, a substantial decline in POL prices during Dec-14 is also expected to reduce the inflation, as the authority slashed the Petrol, Diesel and Kerosene price by 10%MoM, 7.0%MoM and 5.0%MoM respectively during the said period. Resultantly, transportation charges shrunken during Dec-14.
Low CPI expectation hinges on depressed oil prices
The declining trend in international oil prices is expected to further reduce CPI for Jan-14. Moreover, low oil prices will also support the trade balance as it consists ~35% of the total import bill. Better electricity supply to textile sector is also expected to improve textile exports. However, the textile sector is likely to face hurdle from EU in lieu of resumption of capital punishment. However, any increase in gas prices from 01’Jan would pull up the inflation as it holds 1.6% weight in CPI basket. We expect FY15 CPI to settle at ~6%.