Headline inflation is expected to cross the 30% level in September, significantly higher than the 27.8% recorded in August, brokerage house JS Global said.

“A lower base set in Sep-2022 may bring a blip in Sep-2023 CPI reading, projected at 30.6%,” said JS Global in a report on Monday.

The brokerage house noted that a one-time power tariff adjustment of -65% month-on-month (MoM) in September 2022 led to a 115 basis point (bp) MoM dip in Sep-2022 CPI, declining the base for this month.

“The pace would seem higher than the CPI trend of ~28% of late, reported since Jun-2023, as MoM increase in Sep-2023 may remain close to the normal pace of 132bp,” said the brokerage house.

As per the data released by the Pakistan Bureau of Statistics (PBS), the headline inflation in the country clocked in at 27.4% on a year-on-year basis in August, marginally lower than the reading in July when it stood at 28.3%. On a month-on-month basis, it was up 1.7%.

The CPI-based reading for August was also the lowest in the calendar year 2023.

Experts, however, believe the reading is set to go higher in coming months as rupee depreciation, higher energy tariffs, and record-high fuel prices take their toll on consumers’ pockets.

JS Global in its report on Monday highlighted that on a monthly basis, the key driving pushing the uptick is likely to be an ongoing increase in petroleum prices of ~Rs30/ltr.

“Food inflation is also expected to increase by 146bp MoM. Moreover, a MoM increase of 82bp in core inflation is also expected over continuing inflationary pressures on other segments.

“While we expect FY24F average CPI to clock in at 23%, rising oil prices are a key risk to our estimates. Given the historically strong correlation of inflation with oil price trend, albeit with a lag, gives a higher probability of the second-round impact of higher oil prices also kicking into food and related segments that carry ~40% weight in the basket.

“Having said that, the 5% PKR depreciation from its recent low in the past 2 weeks is expected to partially offset the rise in POL product prices,” it said.

The report shared that the last POL price increase incorporated an average PKR/USD of 302. Since that level, the current inter-bank rate is up 4% (Rs10), where the average of the second half of Sep 2023 so far comes to 294 (+3%, Rs8).

“At the last ex-refinery prices, a 3% change quantifies to Rs8,” it added.