JS Securities Limited - Morning Briefing.

Karachi -- January 03, 2019 (PPI-OT)

A good end to 2018 as food deflation weighs on CPI readings

CPI registered a 6.17% YoY increase during Dec-2018; lower than the 6.50% YoY inflation in Nov-2018.

CPI declined by 0.41% MoM, which can be attributed to 1.6% MoM and 0.7% MoM drop in food inflation and transport inflation indices, respectively.

The year has gotten off to a very good start, as inflation expectations are not what they were some three odd months ago when oil prices were on a bullish trajectory.

CPI declines 0.41% MoM in Dec-2018

Headline inflation (CPI) for the month of Dec-2018 stood at 6.17% YoY, compared to 6.50% in Nov-2018, and 6.05% in 1HFY19, where so far, the cumulative number comes below the latest SBP's FY19 CPI expectations of 6.5-7.5% YoY. Core (NFNE) inflation meanwhile maintained an upwards path, standing at 8.4% YoY during the month compared to 8.3% YoY in the previous month, likely causing worrying moments for policymakers.

Sequentially, CPI declined by 0.41% MoM, which was on the cards, given that weekly SPI inflation readings had been giving signs of a monthly slowdown in inflation (combined SPI was down by 0.28% MoM). The monthly decline can be mainly attributable to a 1.6% MoM decline in food inflation (mainly lower vegetable prices), followed by a 0.7% MoM contraction in the transport index (lower transport services and motor fuel indices).

Inflation outlook improves from a few months back

So far, during the 1HFY19, food deflation (-0.1% MoM on average) has played a critical role in containing CPI numbers...