Core inflation, however, rises 5.3%, indicating a build-up in inflationary pressure.
The inflation rate, measured by the Consumer Price Index (CPI) that captures prices of 481 commodities in urban centres, was recorded at 3.81% in November compared to the same month of previous year, reported the PBS.
The main reason behind the fall in inflation rate was the decrease in prices of perishable food items and transport fares. Prices of onions, tomatoes, pulses and tea fell in the range of 6% to 55%.
For these reasons, the monthly inflation rate dropped from 4.2% in October to 3.8% in November.
However, core inflation, which excludes energy and food prices, increased slightly to 5.3% last month, marking the third consecutive month of rise. The continuous increase in core inflation suggests that inflationary pressure is building up, although the State Bank of Pakistan (SBP) believes it is still within manageable limits.
The 5.3% rate was the highest in 19 months. Last time in April 2015, the core inflation had been recorded at 5.4% when the SBP’s key policy rate was 6.5%.
According to minutes of the second last meeting of the SBP’s Monetary Policy Committee, the rising core inflation emanated from increasing house rents, rising cost of healthcare and personal equipment. Furthermore, an increase in prices of cotton cloth amid higher cotton prices also contributed to the inflation.
It said the major risk to core inflation in the current fiscal year 2016-17 was seen in uncertain global crude oil prices.
In the fresh monetary policy announced by the central bank last week, the Monetary Policy Committee decided to maintain the policy rate at 5.75%, beating expectations of a hike in interest rate after the surge in core inflation in previous months.
The central bank stated in a statement the anticipated rise in inflation was due to stability in commodity prices against an earlier sharp decline, phasing out of the impact of oil prices and some uptick in domestic demand.
It noted that these movements were also partially mirrored in the IBA-SBP survey of November 2016 that showed improvement in current and expected economic conditions along with a moderate rise in consumer confidence and inflation expectations for the next six months.
“This manageable inflationary environment over the near term bodes well for the current growth momentum,” said the SBP.
Uncertain global oil prices continue to remain a major risk. Analysts expect a moderate rise in crude prices in the international market after the Organisation of Petroleum Exporting Countries (Opec), a cartel of major oil producers accounting for 40% of global output, announced a production cut of 1.2 million barrels per day.
Average inflation during July-November 2016 stood at 3.92%, according to the PBS. For the current fiscal year, the government has set the inflation target at 6% while the International Monetary Fund and SBP projections are below the target level.
Published in The Express Tribune, December 2nd, 2016.
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