Coming down: 4.5% is the increase in CPI for
2014-15, notably lower than the average inflation. PHOTO: APP
The expectation of low inflation in months ahead is bottoming out among Pakistani consumers, according to a survey jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA).
The July edition of the bi-monthly SBP-IBA Consumer Confidence Index (CCI) shows a “significant decline” of 9.92% over the preceding survey undertaken in May. CCI clocked up at 150.16 points in July, which is down 16.54 points from the CCI reading of 166.7 in May.
An upward movement in the CCI shows improvement in the inflation expectation while a downward trend shows otherwise. The CCI improved consistently after September 2014, as annual inflation declined to an 11-year low in 2014-15. Since the inception of the survey in January 2012, CCI reached its highest level in May.
The survey covers three broad themes: overall consumer confidence indices, inflationary expectations and other key highlights about households’ perception of important indicators.
The survey uses CCI to measure households’ perceptions about the economy. Both of the sub-indices, namely Current Economic Conditions (CEC) and Expected Economic Conditions (EEC), also registered a decrease of 9.95% and 9.89%, respectively, from the May edition of the survey.
The survey reveals that Pakistanis believe prices of food and energy - and non-food and non-energy - items are expected to be higher for the next six months.
It is important to note that expectations about inflation actually play a significant role in determining the overall price level in an economy. Economists believe prices go up partly because people expect them to rise.
Year-on-year inflation, measured by the Consumer Price Index (CPI), was 3.16% in June. CPI for 2014-15 clocked up at 4.56%, which is notably lower than the average inflation of 8.63% recorded in 2013-14. Low inflation reinforced consumers’ expectations of lower-than-usual inflation following September 2014 amidst falling global oil prices.
However, the SBP believes there is a possibility of upward revision in energy tariffs in 2015-16. Along with an adverse impact of floods on the production of perishable food items, the SBP says there could be an upward pressure on inflation going forward. The latest edition of the CCI also confirms that consumers’ expectations of low inflation in months ahead are finally diminishing.
No wonder the SBP put a stop to its accommodative monetary policy stance by keeping its policy rate unchanged in the last monetary policy announcement on July 25. The SBP opted for the status quo in the benchmark interest rate in the interbank market after slashing it by as much as 3% between September 2014 and May.
The percentage of households expressing interest in buying a car or a house in the next six months decreased in July compared to May, according to the latest edition of the SBP-IBA survey. In contrast with the May reading, a smaller percentage of people in July were “positive” about better financial conditions in the next six months, the survey showed.
The SBP-IBA team conducts a stratified random telephone survey of more than 1,750 households across Pakistan every two months. Of these, 66% households were fresh interviewees while about 33% households were interviewed in the previous edition as well.
Published in The Express Tribune, July 31st, 2015.
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