Predicting trend: Consumers expect relatively high inflation, says SBP survey

Published: August 2, 2016
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High inflation expectations are evident for all the commodity groups.
PHOTO: FILE

High inflation expectations are evident for all the commodity groups. PHOTO: FILE

KARACHI: Pakistanis expect relatively higher consumer prices 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 July edition of the bi-monthly SBP-IBA Consumer Confidence Survey reveals that respondents expect an increase in the overall price level compared to the last survey.

“The relatively high inflation expectations are evident for all the commodity groups, food, energy and non-food non-energy items,” according to the brief commentary that accompanies the survey results.

Expectations about inflation play a 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.

The surveys conducted in January and March reflected the expectation of subdued inflation, but the subsequent two surveys reveal that consumers expect otherwise now.

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

Consumer confidence

The Consumer Confidence Index (CCI) showed a decrease of 3.37%, as it slid to 157.85 points from 163.17 points recorded in May.

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 condition indices. The former, denoted by the Current Economic Conditions (CEC), decreased 1.95% compared to the May edition. Similarly, the latter index, which is denoted by the Expected Economic Conditions (EEC), dropped by 4.84% from its value in the preceding survey.

The CCI and its two sub-indices recorded a decrease for the third time in a row, denoting deterioration in the households’ perceptions about the state of the economy.

Inflation outlook

In its latest monetary policy statement, the State Bank of Pakistan (SBP) said increased economic activity in coming months may impact inflation. It forecasts average CPI inflation in the range of 4.5%-5.5% for 2016-17.

Year-on-year inflation, measured by the Consumer Price Index (CPI), increased 4.1% in July as opposed to an increase of 3.2% in the preceding month and 1.9% in July 2015.

On a month-on-month basis, it increased by 1.3% in July as opposed to an increase of 0.6% in the preceding month.

According to the SBP, any upward adjustments in gas tariff, fiscal slippages and supply disruptions pose risk to its inflation forecast.

“Uncertain global oil price is the major risk to this projection. In addition to the sluggish global demand, possible dampening impact of Brexit on global commodity prices and difficulties in clearing excess domestic food stock also pose risk to this inflation forecast,” it added.

The SBP-IBA team conducts a stratified random telephone survey of more than 1,750 households across Pakistan every two months.

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

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