JS Securities Limited - JS Research.

Karachi -- October 26, 2022 (PPI-OT)

CPI: Oct-2022 reading depends on power tariff clarity

We believe CPI reading for Oct-2022 would primarily depend on the electricity price used in the monthly calculation. Our base case estimate for Oct-2022 CPI stands at 21.5%, with MoM increase of 0.5%.

This incorporates that for the purpose of CPI calculation, power tariffs will be treated as unchanged vis-a-vis Sep-2022. We however present sensitivities to different electricity tariff incorporation scenarios which suggest that the month's CPI can range between 19.7% to 22.4%.

We expect food inflation to remain strong, clocking in at 31.4% in Oct-2022, just shy of the 14-year high food inflation reported in Aug-2022 at 31.7%.

Pressure from food prices remains a key concern, added by spike in core inflation. Impact of second round inflation, as a result of higher energy prices in preceding months, keeps our FY23E average CPI to 20%.

Electricity prices to determine CPI this month

We believe CPI readings for Oct-2022 would broadly be subjected to electricity price used in the monthly calculation. We expect CPI for Oct-2022 to clock in at 21.5%, with MoM increase of 0.5%. Having said that, the 4.6% weighted head item can take the headline CPI anywhere between 19.7% - 22.4%.

The range arises from a confusion, tailing from last month's CPI calculations, where a substantial reversal in Fuel Cost Adjustment in Sep-2022 set the electricity tariff base at Rs3.47 in SPI's readings from the fourth week of Sep-2022, while the same was reported at Rs6.43 in the CPI data of Sep-2022. Moreover, it was also understood that the reversal would be charged to consumers in a deferred manner with 6 equal monthly instalments, where the same has not been reflected in SPI readings as yet.

Hence, assuming SPI Oct-2022 readings for electricity prices give CPI of 19.7%, while removing FCA adjustment from Oct-2022 increases CPI to 22.4%. This denotes a MoM change of -1.0%/+1.2% in the respective scenarios. Our base case for the month of Oct-2022 incorporates electricity prices as were reported in Sep-2022 CPI.

Food inflation to...

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