KARACHI - The headline inflation for the month of January 2010 is anticipated to record at 13.16 per cent compared to 10.52 per cent in December 2009 on the back of total 30 per cent increase in power and energy tariffs, according to a research analyst. Kamran Rehmani, research analyst at FECL, sees an upward trend in the growth of monthly price indices for January, which is expected to be released by the FBS on Feb 10, 2010 (today). As per analysts calculation, in the month of January, M-o-M inflation is likely to surge by 195bps largely owed to 12 and 13 per cent increase in power and gas charges effective from Jan 01, 2010. Importantly, in the previous month, monthly inflation was down by 50bps due to decline in food index. We estimate raise in tariffs would have a direct impact of around 90bps monthly growth in headline inflation. In addition to this, food index is also expected to contribute further 70bps, driving the monthly inflation to 13.16 per cent in January 2010. The estimated inflation numbers for January 2010 would also be higher than the average inflation of 10.3 per cent in 1HFY10. For the later half of current fiscal, we believe, inflation would remain in the range of 13.0-13.2 per cent with our full year average target of 11.8 per cent, after incorporating 7-8 per cent further rise in power prices, Rehmani said and added, the trickle down impact of energy inflation to other core categories would become problematic for economic managers in upcoming months. It may be mentioned here that inflation had reached at the level of 20.5 per cent during January 2008. The SBPs last proactive policy response in the form of maintaining status quo in discount rate primarily hinged on the anticipated uptick in headline inflation and any spiral impact of hike in energy tariff. He further opinioned that the central bank may possibly opt for an accommodative stance in upcoming monetary reviews by keeping a balance between the price level and much needed liquidity for growth in real activities. He expects a cut of 100bps in discount rate by end-June 2010 given that near term inflation will primarily be driven by higher food prices amid supply constraints and energy inflation in the wake of fiscal consolidation. Moreover, realization of external financing from FoDP and US to support budgetary gap would facilitate the regulator in taking the required policy shift. Meanwhile SBP in its recent monetary statement pointed out that the inflation outlook for full FY10, nevertheless, remained somewhat susceptible to fiscal consolidation efforts and to incipient international commodity price pressures. These include already announced and planned increases in electricity and gas prices. Added to these developments are the difficult-to-assess negative impact of law and order situation and power shortages on the productive capacity of the economy. These factors influence peoples expectations of future price level trends and impart stubbornness to inflation. The likelihood of an uptick in inflation in the remaining months of FY10 thus seems quite plausible. Based upon these considerations, SBP expects the average CPI inflation for FY10 to remain between 11 and 12 percent.