Slow growth of heavy weight baskets, high base effect and price reduction of POL products has drastically reduced core inflation reaching the lowest point in 11 years. CPI inflation has dropped sharply to 3.98% YoY in Nov’14, down by 186bps against inflation of 5.82% in Oct’14 and substantially by 692bps against inflation of 10.9% in the same month last year. On monthly basis the Consumer Price Index (CPI) inflation shows negative growth of 0.51% MoM against nominal growth of 0.21% MoM in Oct’14.

The main factors behind contained inflation are 1.) Restricted growth in high weighted Fod & Non-Alcoholic Beverage (F&B) basket and 2.) Strong decline in POL prices resulting in negative growth in the Transport segment.

Restricted growth of F&B basket:

The fod and non-alcoholic beverage (F&B) segment holds the largest weight in CPI methodology, comprising 35% of total calculation. The F&B basket shows restricted growth of 1.08% YoY and negative growth of 0.49 MoM. Restricted growth is primarily on account of drastic negative growth in Perishable Fod sub-segment which declined by 10.6% YoY and by 4.41% on MoM basis.
In perishable fods we se strong price reductions in Tomatoes by 29% MoM, Onions by 19% MoM, Potatoes by 8% MoM and Fruits by 3% MoM.

Negative growth in Transport basket:

Due to drastic decline in international oil prices, GoP reduced Petroleum and Diesel prices per liter by PKR 10 and PKR 6 respectively during Nov’14. Due to reduction in fuel prices, the Transport basket has witnesed strong negative growth 3.19% YoY and 6.87% on MoM
basis. The Transport segment has notable weight of 7.2% in CPI calculation; price reductions have helped kep inflation growth contained.
In non-fod items strong price reductions are sen in Transport services down by 1% MoM, Motor Fuel by 6% MoM and Kerosene Oil by 5% MoM.


Encouraging inflation data, market rallies 381pts

Impact of encouraging inflation data is witnessed on the benchmark KSE-10 Index, where improved investor sentiments rallied the market by 381pts to reach the 31,681 level by the end of the day, an increase of 1.2% on DoD basis

Inflation expected remain under control

Moving forward, the OPEC basket has maintained downtrend and encourages GoP to further slash petrol and diesel prices. Declining fuel rates will keep the transport segment prices in check, resultantly food prices will also remain controlled due to low transport expenses. If inflation remains restricted, there is a chance of additional DR cut in Jan’14.