Inflation slows down, clocks-in at 3.8% in February

Enhanced food supplies help neutralise impact of increase in petroleum prices


Shahbaz Rana March 01, 2018
Enhanced food supplies help neutralise impact of increase in petroleum prices. PHOTO: AFP

ISLAMABAD: Inflation slowed down to 3.8% in February due to enhanced food supplies that also helped neutralise the impact of a continuous increase in petroleum products prices.

Measured by the Consumer Price Index, the headline inflation indicator further slowed down to 3.8% in February over the preceding month, reported the Pakistan Bureau of Statistics (PBS) on Thursday. It was the second consecutive month when the CPI pace slowed down after the State Bank of Pakistan increased its key policy rate by 25 basis points two months ago.

On a yearly basis, food inflation was recorded at 2.2% in February - significantly lower than 3.7% seen in January.

Better food supplies are neutralising the impact of an increase in the prices of petroleum prices on the inflation indicators, said former finance secretary Dr Waqar Masood Khan. But he said that the pace of inflation could accelerate once the rupee-dollar parity is adjusted to its true value.

Any sudden food price shock could also reverse the current low prices trend, said Khan. Market expectations were also tamed due to low interest rates, as the government's borrowing needs were also largely met by the SBP, Khan added.

Inflation reading clocks in at 4.4% in January

The commercial banks are not investing in long-term Pakistan Investment Bonds on the hope of further increase in the key discount rate, which the central bank last time increased to 6%.

The PBS inflation bulletin also showed that on a year-on-year basis, the non-food non-energy inflation, commonly known as core inflation, also remained unchanged at 5.2% in February, which was the lowest level in the past one year. The PBS data showed that there was no major movement in core inflation during the past one year that remained in the range of 5.2% to 5.5%.

Among 89 commodity groups of CPI, the core inflation covers the price movement of 43 items. The SBP uses core inflation while formulating its monetary policy.

The CPI index is calculated by checking the prices only in the urban centre. The PBS plans to change this flawed strategy and is currently in the process of rebasing the inflation base year to 2015-16. Once the inflation index is rebased, the PBS would capture prices in both rural and urban centres.

Due to reduction in pace of inflation for the second month, the average inflation rate during the first eight months of the fiscal year, (July-February) remained at 3.84%, which was slightly lower than the level observed during the same period of the last fiscal year.

Inflation spikes 4.6% in Dec 2017, hits 8-month high

Until private sector credit picks up, the pace of headline inflation would not significantly accelerate, said Dr Ali Kemal, an economist. He said the money in circulation was not increasing and government budgetary borrowings were going into the real sectors of the economy.

As of February 16, the SBP reported the growth in money circulation at only 0.83% since start of the fiscal year. In the comparative period of the last fiscal year, this ratio was 3.11%, showed the central bank data.

For the last seven months, the federal government has been increasing the prices of petroleum products. The kerosene oil prices jumped 24.1% and petrol 12.2% in February over a year ago. The government is increasing the petroleum products prices on the pretext of increase in crude oil prices in the international market. Another reason behind high prices of the diesel is the 25.5% general sales tax on diesel. It is significantly higher than the standard 17% GST rate.

On a yearly basis, the maximum increase in the category of food items was in betel leaves of 210% due to heavy regulatory duties that the government imposed to discourage its imports. Prices of onions jumped 45% followed by 20% increase in prices of chicken.

COMMENTS (1)

Zaida Parvez | 3 years ago | Reply This has to be a joke. Have these people tried buying anything in the market?
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