All commodity groups: Expectations of low inflation intact in latest survey

March edition reveals respondents expect ‘significant decline’ in prices

KARACHI:

Pakistani consumers expect low inflation in coming months, according to a survey jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA), Karachi.

The March edition of the bi-monthly SBP-IBA Consumer Confidence Survey reveals that respondents expect a “significant decline” in the overall price level compared to the last survey conducted in January. “The low inflation expectations are evident for all the commodity groups, food, energy, and non-food non-energy items. More specifically, expected energy inflation came down significantly (over the preceding survey),” according to the brief commentary on the latest survey.

The November edition had shown that consumers expected an uptick in inflation going ahead, but the subsequent two editions in January and March show the consumers’ expectations remain to the contrary.

The survey covers three broad themes: inflationary expectations, overall consumer confidence indices and other key highlights about households’ perception of important indicators.

In contrast to low inflation expectations, Consumer Confidence Index (CCI) showed a decrease of 2.03%, as it slid to 168.96 points from 172.47 points recorded in January. An upward movement in the CCI shows improvement in the households’ perceptions about the state of the economy while a downward trend shows otherwise.

The survey records households’ perceptions, which are relative to six months in the past and six months in the future, about personal financial conditions, the overall economy, unemployment and consumption of durable goods.

The CCI can be partitioned into current and expected economic conditions indices. The former, denoted by the Current Economic Conditions (CEC), registered a decrease of 1.69% from the January edition. Similarly, the latter index, which is denoted by the Expected Economic Conditions (EEC), dropped 2.39% from its value in the preceding survey.

It is important to note that the expectations about inflation actually play a most significant role in determining the overall price level in an economy. Economists believe prices go up - or remain stable - partly because people expect them to.

Year-on-year inflation, measured by the Consumer Price Index (CPI), was 4% in February as opposed to 3.32% in January.

According to Global Securities Research Analyst Salman Rashid, CPI inflation for March faces “limited upward push” because of low global commodity prices and declining petroleum prices. “CPI inflation for March is expected to clock up at 3.85% year on year, or up 0.06% on a monthly basis,” Rashid said.

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, March 30^th,  2016.

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