Inside Financial Markets

CPI Forecast: Declining T-Bills Yield and Ballooning RIR hinting further

CPI Forecast: Pakistan headline inflation clocked in at 1.32% Y/Y during the month of September as compared to 1.72% Y/Y in the previous month, decreased on the back of lower food prices (weight of 34.83% in overall consumer price index). Lower oil prices has also helped CPI to fall as transportation cost dipped by 14.38% Y/Y. Going forward, expected recovery in international oil market and reduction in subsidy on electricity (As per IMF) may provide little push to CPI.

We expect CPI for the month of October likely to clock in at 1.65% Y/Y, while average CPI to stand at 1.62% Y/Y for 4MFY16 as compare to 7.09% Y/Y in same period last year. We attribute the expected little upward movement in inflation to i) higher prices of wheat & allied products, pulses and fresh vegetables etc ii) scheduled upward revision in House Rent Index having 29.4% weight in CPI basket iii) Devaluation of PKR against $.

Outlook: With an improvement in macro-economic indicators we expect Inflationary pressure during FY16 to remain muted courtesy to favorable base effect and bearish outlook of global commodity prices. Since August 2014 global food prices dropped by 14% reported by World Bank, following a deep decline in Energy prices amid weakening global demand from giant energy consumer like China, US, Japan, EU which has created oil supply glut. On domestic front, recent currency depreciation coupled with expected increase in Petroleum prices (Nov’15) will likely to exert inflationary pressure during the period.

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T-Bill Yields declined, hinting further easing on the way: Yields reduced on latest T Bill auction, indicating market expectation about further monetary easing. SBP sold Market Treasury Bills (MTBs) worth Rs207.44 billion with yields further reduced in Wednesday’s auction.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

The Canadian Securities Institute


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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)