Inflation increases to 2.73%, further spike in offing

Mini-budget, base effect to kick in; pressure to increase steadily

ISLAMABAD:

Inflation increased by 2.7% in November on the back of spike in prices of essential food items, amid concerns that rates of other consumer items will also significantly increase in the coming months due to the mini-budget announced by the government this week.

Inflation, measured by Consumer Price Index (CPI) that captures prices of 481 commodities every month in urban centres, rose 2.73% in November on a year-on-year basis, said the national data-collecting agency.



The sudden spike in prices was expected due to bottoming out of commodity prices and erosion of base effect. However, the jump was more than expectations, as inflation stood at 1.6% in October.

For the first time in more than one and a half years, the non-food non-energy inflation, commonly known as core inflation, increased to 4% in November over a year ago. The core inflation had been recorded at 3.6% in October. This shows that the underlying inflationary pressures have started building up, as the experts give more importance to food and fuel-adjusted inflation, which is not susceptible to seasonal price shocks.



The downward inflationary trend reversed due to increase in prices of essential food items, said Shaukat Zaman, Director Prices of the national data collecting agency.



The government on Monday introduced a mini-budget to raise Rs40 billion. It has increased regulatory duty rates on 350 items besides imposing additional 1% customs duty on thousands of imported items. The importers would pass on the taxes to the consumers, which economists fear will fuel inflation.

In near future, the impact of increase in customs duties would not be significant, as the commodity prices remain low. However, as soon as the commodity prices in the international market bounce back, the country may see a surge in imported inflation, said experts.

They said increase in prices of commodities would also allow domestic producers to increase their rates. Out of 350 items that saw further increase in regulatory duties, as many as 183 are food items.



The five-month average CPI-based inflation rate in July-November period also slightly picked up to 1.9%, said the PBS. It will not affect the overall inflation target of 6%. For the current fiscal year, the government has set the inflation target at 6%.

In an anticipation of increase in prices, the State Bank of Pakistan kept the key policy rate - rate at which it lends to commercial banks - unchanged at 6% in its last monetary policy announcement.

According to the PBS, prices of food and non-alcoholic beverage group increased 1.3% in November over a year ago. In October, the food group prices had contracted by 1%. The food group has over one-third weight in CPI basket and any change in price trend has an effect on overall prices.



Prices of perishable food items increased 3.7% year-on-year basis in November while non-perishable food items group saw an increase of about 1%, according to the PBS.

Prices of tomatoes jumped almost 100% in November, followed by 84% increase in prices of onions, 56% in pulse gram and 38% to 50% in the prices of pulses. Cigarettes prices increased 17%, which are expected to see further hike due to 7.5% increase in federal excise duty rates on cigarettes.

There was also upward trend in prices of garments, tailoring and education. The cost of education increased 8.8%, according to the PBS. Contrary to upward adjustment in CPI-based inflation, the Wholesale Price Index (WPI) remained negative. The WPI-based rate of inflation contracted 1.7% in November over the previous year, said the PBS.

Published in The Express Tribune, December 2^nd, 2015.

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