Based on leading SPI (up 15.2%YoY in Aug’10 vs. 13.9%YoY in Jul’10), we expect CPI to rise to 12.85%YoY in Aug’10. Despite resurgent inflationary pressures however, the SBP may choose to keep the Discount Rate constant at 13% in the Sep’10 monetary policy. This is because real interest rates (based on CPI) should still be positive where aggressive monetary tightening by the SBP has historically coincided with negative real interest rates. Nevertheless, with the new inflationary trend likely to gain momentum going forward, we believe near-term monetary tightening will at best be postponed by two months. In such a scenario, we would recommend investors to shift away from cyclicals (Banks, Insurance, Textiles, Autos) and towards relatively defensive sectors (FMCGs, Power, E&P). At the same time, we flag Cements, Fertilizers and Agri Autos as key reconstruction plays over the medium term..