ISLAMABAD: As favourable effects of the decline in commodity prices start to wane, the key inflation indicator remained almost flat in March, suggesting that no major change will be in the offing in the monetary policy announcement.
Inflation measured by Consumer Price Index (CPI) - the indicator that captures prices of 481 commodities every month in the urban centres - remained at 3.94% in March on a year-on-year basis, reported the Pakistan Bureau of Statistics on Friday.
The latest results would strengthen views of majority members of the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) who are in favour of keeping the interest rate unchanged at the current level of inflation.
The next monetary policy announcement is expected next week.
In its last announcement in January 2016, the MPC had decided to keep the policy rate unchanged at 6% with a majority vote of 6:2 while taking the long-term view of the economic trends.
The two members of the committee had sought 50 basis point reductions in the discount rate.
According to the central bank, it is not alarming that the trend in inflation has started to reverse. It expects average inflation to remain around 3 to 4% in the current fiscal year.
The latest International Monetary Fund (IMF) report, released on Friday, also stated that the headline inflation continued to gradually rebound as the favourable effect of past declines in international oil prices continued to wane.
The IMF further noted that inflation, while remaining well-anchored by prudent monetary and fiscal policies, was expected to increase to about 4.5% by June 2016
The Fund has ‘advised’ the central bank to maintain positive real interest rates consistent with the programme’s monetary targets while remaining vigilant for any signs of additional inflationary pressures.
The PBS monthly bulletin showed that the average CPI-based inflation rate in July-March period also slightly picked to 2.64%. It will not affect the overall inflation target of 6%, as reinforced in the latest monetary policy statement.
The Wholesale Price Index (WPI) remained subdued at 0.2% on annualised basis but was negative on month-on-month basis.
For the fifth successive month, non-food, non-energy inflation, commonly known as core inflation, further increased to 4.7% in March over the same month of the previous year, according to the PBS. Core inflation had been recorded at 3.4% in October and, after that, it has been gradually ticking up, indicating that the underlying inflationary pressures were persistent.
The main reason behind the surge in inflation was the government’s decision to increase regulatory duties rates on 350 items besides imposing additional 1% custom duty on thousands of imported items. The importers have started passing on the impact of taxes over to the consumers.
However, due to overall slump in commodity prices inflation is expected to remain within reasonable limits and below the official target of 6%, said the experts.
According to the PBS, prices of food and non-alcoholic beverage group increased to 2.45% in March over a year ago. The price of sugar went up further in March despite bulk stocks, highlighting the impact of the government’s decision to encourage exports. The sugar price increased 14.9% last month over a year ago.
The food group has over one-third weight in CPI basket and any change in prices trends has an effect on overall prices.
Prices of perishable food items also increased 2.6% year-on-year basis in March, according to the PBS.
The rates of pulses surged 54%, followed by 44% increase in onion prices. There was also an upward trend in prices of garments, tailoring, construction wagers, doctors and education fees.
Published in The Express Tribune, April 2nd, 2016.
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