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Full Version: October inflation may fall to single digit
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KARACHI: Headline inflation is expected to fall to single digit in October, but most researchers and analysts said Consumer Price Index (CPI) will start moving up again from December this year.

They said this uneven movement of CPI is immanent because a big slash in October inflation would be mainly because of high base effect which means that inflation during the same month last year was very high close to 25 per cent.

Analysts predicted that CPI in October would be in the range of 8.4 per cent to nine per cent while the September CPI was 10.1.

The falling inflation has given hope that cost of doing business will be reduced with the possible reduction in the interest rates by the State Bank.

‘Inflation in October may dip close to nine per cent on year on year basis due to last year high base effect and slowdown in the rise of commodity prices,’ said Mohammad Sohoil of Topline Securities.

However, he said, from December onwards year on year basis, CPI would start increasing and move to double digit again.

He was of the view that in the light of slowdown of inflationary pressure, the SBP may reduce the discount rate by one per cent at the end of November.

Analysts said average inflation for the current year could be as high as 12-13 per cent by the end of the current financial year.

‘My calculation for October inflation is 8.4 per cent and it will start increasing since November,’ said Mohammad Imran, head of research at Arif Habib Investment.

The high inflation marred the investment potential and expansion of the economy during the last fiscal ended in June 2009. The average inflation was over 20 per cent which eroded any possibility of investment and growth in the economy.

‘If inflation remains within the estimated range of 12 to 13 per cent, economy would get support from corporate sector for its uplifting,’ said Imran.

Another researcher of First Capital Equities Kamran Rehmani said inflation would come down to single digit, will start pick up again from November and then second fall will begin from March 2010.

‘My forecast for October 2009 inflation is 8.6 per cent. At this number, October 2009 CPI would be 2-year low,’ said Rehmani adding that this would be a consecutive 8th month of declining CPI.

He said the declining pattern in CPI mainly reflects the high base effect while the dilution of the high base effect from next month will cause the CPI to resume its rising trend from November 2009 to February 2010 at least.

‘From March 2010, the CPI would again start depicting a softening trend,’ said Rehmani.

Experts said inflation is now the focal point for government, State Bank, corporate sector and the general public while it severely hurt the general public after hitting corporation sector.

They said high inflation forced the State Bank to tighten the monetary expansion, cautioned the financial institutions to adopt watchful approach since the non-performing loans were piling up and alerted the private sector to remain out of borrowing for new ventures or expansion plans.

‘Inflation played a key role for suppressing the economic growth during the last year and it is still alarmingly high for new investment or ventures,’ said another analyst.
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