May: Independent study casts doubt on 3.2% inflation rate

Price level of CPI for all urban households in February 2016 was understated by as much as 9%, says think tank


Shahbaz Rana June 02, 2016
Currently the CPI does not capture inflation levels in rural areas — the survey area will have to be increased to include more ‘mandi’ towns at the rural-urban interface. PHOTO: FILE

ISLAMABAD: An independent study has established that the Pakistan Bureau of Statistics (PBS) is grossly understating the level of inflation, raising question marks on the national data collecting agency’s latest figure of 3.2%, which were below market expectations and surprised observers.

The PBS stated that the pace of inflation slowed down to 3.2% in May, below the 4% benchmark, due to reduction in prices of food and other consumable goods.

Consumer Price Index: Inflation reads at 3.94%, almost flat

The inflation figure is based on the Consumer Price Index (CPI); the indicator that captures prices of 481 commodities every month in the urban centres.

However, a study conducted by renowned economist Dr Hafiz Pasha and his team from the platform of Policy Research Institute of Market Economy (PRIME) has confirmed apprehensions - the PBS has been understating the level of inflation in the country.

PRIME released its findings the day PBS made its inflation data public for the month of May.

According to the findings, the price level of CPI for all urban households in February 2016 was understated by as much as 9%. “The price level for the lowest quintile of households was 13% higher than the overall CPI in February 2016,” it said.

Furthermore, poor households had faced an annual inflation rate of almost 2% higher than reported by the PBS since 2007-8.

Other households have been exposed to 1.5% points more inflation on average annually than reported by the PBS.

Consumer Price Index: Inflation increases 3.2%, faster pace in offing

The report recommends the need for more inflation indices to be constructed to fully portray the taxonomy of inflation in the country. It also proposed increasing the number of locations of survey for rural prices. “Currently, the CPI does not capture inflation levels in rural areas, the survey area will have to be increased to include more ‘mandi’ towns at the rural-urban interface.”

The report said there appeared serious problems of understatement of inflation in housing rents as well. “Based on a sufficiently large number of properties, each month a national rent hedonic function will need to be estimated,” it added.

The above findings have come on the heels of concerns expressed by the Statistics Division over the credibility of official data.

The Statistics Division had recently sought the constitution of a committee to probe the authenticity of official figures compiled by the PBS. “The inflation data is not an exception, as due to methodology flaws the PBS does not take into account the implications of increase in electricity prices through various surcharges.”

The downward trajectory in inflation in May was surprising, if one reads the analysis of the Monetary Policy Committee of the State Bank of Pakistan.



In its last policy statement, the SBP noted that after remaining low in the outgoing fiscal year; inflation in fiscal year 2016-17 was likely to attain a higher plateau. The central bank said the relatively faster pickup in demand compared to its gradually-improving supply dynamics could lead inflation on a higher side.

Feeling the pinch of the price hike

Second, rising global oil price along with modest recovery in non-energy commodity prices will be passed on to the domestic consumer prices. Third, some risks, such as imposition of new taxation measures and increase in electricity and gas tariffs, if realised would put upward pressure on CPI inflation.

For the next fiscal year 2016-17, the government has decided to set the inflation target at 6% while the International Monetary Fund (IMF) has projected 5% inflation in the next fiscal year.

The PBS monthly bulletin showed that the average CPI-based inflation rate in July-May period remained at 2.8%.

There is marked disconnect between the general inflation and core inflation reported in May. The non-food non-energy inflation, commonly known as core inflation, increased to 4.6% in May over the same month of the previous year, according to the PBS. On the other hand, the general CPI inflation, slipped to 3.2% from 4.2% level of April.

Heavy indirect taxation and absence of magistracy powers to check prices of essential items was causing a surge in prices. However, the PBS was not fully capturing price levels.

Published in The Express Tribune, June 2nd, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS (1)

Khalid | 7 years ago | Reply An accountant running economy by his on way.
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ