Reading in line with analysts’ expectations, rate expected to remain around 6%.
After 12 months of somewhat stability, the annual inflation rate inched up to 3.2% in May due to increase in prices of food items, announced the Pakistan Bureau of Statistics (PBS) on Monday.
The inflation, as measured by the Consumer Price Index (CPI), clocked in at 3.2% over the same month of the previous year, reported the national data collection agency. The new rate was in line with analysts’ expectations who predicted an uptick in the key macroeconomic index.
The rate of increase in prices of essential commodities started slowing down about a year ago, coinciding with their international prices, helping the key macroeconomic index to slip below the 12-year level.
The rare stability in prices allowed the State Bank of Pakistan (SBP) to lower its benchmark interest rate to 7%, a 42-year low.
Analysts are still not predicting an abnormal increase in prices in the coming months and inflation is expected to remain around 6% in the short term.
The government has also targeted to keep overall inflation rate at 6% in the next fiscal year 2015-16.
The overall inflation rate increased due to significant surge in food prices, as year-on-year food inflation in May rose to 3%. Non-food inflation index rate further slipped to 3.3%.
Prices of tomatoes showed an alarming increase of 134.8%. Rates of onions also surged 40.4%, pulse mash 21.5%, cigarettes roughly one-fifth, fresh vegetables 18.1% and pulse gram roughly 18%. Food prices are increasing ahead of Ramazan and are expected to go further up during the current month as well.
However, the underline inflationary pressure was still easing out, as fuel- and food-adjusted inflation, known as core inflation, declined in May.
There was a reduction of a half percentage point in a single month and core inflation clocked in at 4.9% on a year-on-year basis in May, slipping below 5% after years. The core inflation came down for the consecutive nine months.
With core inflation coming down to 4.9%, real interest rate remained 2.1%, even after the recent cut of 100 basis points in the key discount rate. However, trimmed inflation saw an increase and clocked in at 3.9%. Analysts say the one-month data cannot become the basis for reaching a concrete decision, as the increase could be because of seasonal factors.
According to the PBS, in May, food and non-alcoholic beverages group inflation accelerated to 2.22%. After witnessing a decline in previous months, perishable food prices soared 5% last month compared to over a year ago.
The average inflation rate during 11 months of the current fiscal year (July-May) rose to 4.7%, according to the PBS. For the outgoing fiscal year, the government had set the inflation target at 8%, which it is likely to achieve on the back of reduction in prices of commodities in the international market.
The reduction in prices of petroleum products remained the main driving force behind the steep decline in the overall inflation index.
“Lower oil prices are still working their way through the economy,” said IMF Resident Representative in Pakistan Tokhir Mirzoev. “We expect inflation to rise gradually in the coming fiscal year as commodity price effects dissipate. Inflation should, however, remain well-anchored by continued prudent monetary and fiscal policies.”
Published in The Express Tribune, June 2nd, 2015.
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