Nov-11 CPI inflation slows down to 10.19%

Lower MoM inflation yields a below expected CPI for Nov-11: Nov-11 CPI inflation fell to 10.19%, against a consensus estimate of 10.70%, as MoM CPI inflation fell to 0.29% against an average of 1.3% MoM during 4MFY12.

Stagnant food prices, housing and transportation cost during Nov-11… Average food prices remained stagnant on MoM basis in Nov-11, as decline in prices of non perishable food items offset increase in perishable food items. Average prices of housing subgroup edged up by a marginal 0.1% whereas transportation cost fell 0.1% MoM.

… unlikely to sustain going forward: While non perishable food items would likely witness lower MoM inflation ahead, we understand that lower inflation in transport and housing costs is unlikely to sustain. That said, we still see FY12 CPI inflation to fall well within the 12% target. However, risks remain high for FY13 average CPI.

Lower MoM inflation yields a below expected CPI for Nov-11

Nov-11 CPI inflation fell to 10.19%, against a consensus estimate of 10.70%, taking 5MFY12 average CPI inflation to11.12% YoY.  Lower than expected CPI inflation during Nov-11 was an outcome of MoM CPI inflation falling to 0.29% – the lowest since May-11 – against an average of 1.3% MoM during 4MFY12. Other measures of inflation also fell during Nov-11, as WPI clocked in at 11.96% against 4MFY12 average of 17.8% and SPI declined to 5.95% against 4MFY12 average of 11.1%.

Stagnant food prices, housing and transportation cost during Nov-11…

Average food prices rose by a meager 0.1% on MoM basis in Nov-11, as 1.8% decline in prices of perishable food items offset 0.5% increase in non-perishable food items. Perishable subgroup have witnessed a decline in average prices after a sustained rise during the past 4 months – totaling 27% – driven by floods in Sind, which indicates that perishable food items may witness further price declines in the coming months. It is important to note here that perishable food subgroup witnessed YoY inflation of 5.27% during 4MFY12 due to high base effect of last year’s flood. Housing costs, on the other hand edged up by a marginal 0.1%, due

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to unchanged House Rent cost, the largest component in the housing segment, which is based on quarterly surveys.  Transportation cost fell 0.1% MoM due to decline in motor fuel prices.

… Unlikely to sustain going forward

While non perishable food items would likely witness lower MoM inflation ahead, due to the sharp rise witnessed in price levels during the last four months, we understand that lower inflation in transport and housing costs is unlikely to sustain. Although it is difficult to predict house rent, as it is based on actual surveys, recent strength in oil price, and likely upward revision in gas prices from Jan-12, would push transport and utility costs up, which generally has a broad based lagged effect on general price levels due to cost push inflation. That said, we still see FY12 CPI inflation to fall well within the 12% target. However, risks remain high for FY13 average CPI.

Economic & Political News

Refineries plan USD9.9bn investment to boost capacity

Oil refineries have submitted plans for tentative up-gradation and other associated projects to increase refining capacity to a total of 19.3mntons with an investment of USD9.9bn, according to a working paper submitted to the federal government recently.

PPL’s privatization through SPO to complete next month

The Secondary Public Offering (SPO) of Pakistan Petroleum Limited (PPL) is likely to be completed by next month (January 2012). The PC board in its meeting held on April 20, 2011 had approved the SPO of approximately 2.5% government of Pakistan share in the PPL.

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