Breaking the thirteen month long persistent downward trend, CPI inflation rose to 10.5%YoY in Nov’09. We highlighted that the impact of Ramadan and cost pressures arising from the 7% hike in power tariffs in Sep’09 were the primary reasons for the inflationary spike and hence initially anticipated the trend to reverse in Dec’09. Our view held for the first three weeks of the months where the weekly Sensitivity Price Index – a leading inflationary indicator – fell till the 17th of Dec’09 (Please see the graph below). However, the SPI rose in the last two weeks ending 31st Dec’09, a rise which corresponds with the start of the Islamic month of Moharram when demand for primary food commodities usually goes up.
The average SPI inflation for Dec’09 should clock in at 12.9%YoY up from 10.7%YoY in Nov’09. Based on this increase we forecast CPI inflation to rise to 11.2%YoY in Dec’09. Now that gas & power tariffs have been raised substantially in Jan’10, we expect cost push inflationary pressures to persist over the next three months. Therefore, we reiterate our expectation of no cut in the discount rate in the upcoming monetary policy to be announced by end-Jan’10.
AKD Research
January 7th 2010