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Consumer Price Index (CPI)-based inflation in Pakistan is expected to decline and could clock in at 23.5% on a year-on-year (YoY) basis in February, lower than 28.3% in January, said brokerage house Arif Habib Limited (AHL) on Tuesday.

“The projected YoY headline inflation rate for February 2024 is expected to be 23.5%, reflecting a decline from the previous month, January 2024,” it said.

“As a result, it is expected that the average CPI for 7MFY24 will be ~28.1% YoY, contrasting with the 26.2% YoY rate recorded in 7MFY23.”

Moreover, the average core inflation in February is projected to reach 18.6% on a YoY basis, showing a decline from last month’s figure of 20.8%, it added.

AHL shared its projections for February 2024, which indicated a month-on-month increase of 0.4%, contrasting with the average MoM increase of 1.93% observed over the first seven months of FY24.

“This rise in monthly inflation is primarily attributed to increases in the transport index (+2.5% MoM) and housing index (+2.0% MoM), while the food index is expected to decrease MoM (-0.9%),” said the brokerage house.

AHL highlighted that the decrease in the food index is mainly due to decline in prices of items such as eggs, onions, tomatoes, oil and ghee.

“Moreover, the housing index is expected to rise mainly due to an increase in gas tariff, which we’ve factored into our base case assumption … in addition, the transport index is expected to remain elevated due to a MoM increase in petroleum product prices,” it said.

Looking forward, the brokerage house anticipates headline inflation to decrease primarily due to the significant base effect.

However, factors such as fluctuations in food prices (associated with Ramadan), potential depreciation of the PKR against the USD, and continuous rises in international oil prices, might affect these forecasts.

Last month, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP), in line with expectations, kept the key policy rate unchanged at 22%.

However, MPC revised upwards the inflation projection for fiscal year 2023-24 from 20-22% to 23-25% keeping in view the latest round of recent energy tariff hikes.

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