Inflation rises sharply: SBP

Express June 01, 2010
Inflation rises sharply: SBP

KARACHI: Headline inflation year-on-year (YoY) rose to 13.3 per cent by April 2010, significantly higher than the short-term low of 8.9 per cent in October 2009, the State Bank of Pakistan (SBP) said in its third quarterly report on Tuesday.

Inflationary pressures largely emanated from non-core (food and energy) components. Rise in food and energy prices have strong second-round effects, therefore, core inflation is also likely to increase in months ahead, the central bank predicted.

Consumer Price Index (CPI)

Although CPI inflation at 13.3 per cent by April 2010 is substantially lower than the 17.2 per cent seen in April 2009, it remained at an uncomfortably high level, the report said.

This persistence in inflation is largely due to high food prices, upward adjustment in electricity tariffs and rise in prices of key fuels, it added.

Upward pressures on CPI inflation are also evident from the fact that the number of items registering double-digit inflation during recent months has been increasing since November 2009.

Most of the commodities witnessing higher increases in prices were from food and energy sub-groups.

However, a rise in CPI non-food inflation from 11.6 per cent in March 2010 to 12.2 per cent in April 2010 is contributed by an impact of higher cotton prices on apparel and textiles, the rise in prices of medicines and a sharp upward revision in television licence fees.

CPI food inflation

CPI food inflation bottomed out at 7.5 per cent YoY in October 2009. However, it has bounced back in double digits since then.

Encouragingly, while it showed no change in April compared to March 2010, it remained at a very high level of 14.5 per cent.

The impact of a decline in prices of sugar, wheat and some perishable commodities during April 2010 relative to the preceding month was offset by the increase in prices of pulses, milk, rice, tomatoes and some beverages.

A very high contribution (9.6 per cent) in food inflation is from wheat flour, which is mainly a function of government’s pricing policy, the report said.

CPI non-food inflation: CPI non-food inflation YoY also remained in double digits and moved in a narrow range during the recent months. CPI non-food inflation was recorded at 12.2 per cent in April 2010, slightly higher than 11.6 per cent registered in the preceding month, but significantly lower than 17.3 per cent in April 2009.

Wholesale Price Index (WPI): Inflationary pressures are more evident in high WPI inflation. WPI inflation rose to 22.0 per cent YoY during April 2010 from its bottom of 0.3 per cent in August 2009.

While CPI nonfood inflation is moving in a narrow range, WPI non-food inflation is increasing sharply. This is due to the direct impact of rising international prices of cotton, base metals and petroleum on WPI, the SBP stated.

During the initial months of FY10, WPI inflation was significantly lower than the CPI inflation. Nonetheless, WPI inflation has surpassed CPI inflation in recent months.

Sensitive Price Indicator (SPI): Following trends in CPI and WPI, SPI inflation has also increased during recent months. SPI inflation (YoY) was 17.4 per cent during April 2010 compared to 17.6 per cent in March 2010. Higher incidence of SPI inflation was mainly due to rise in the prices of essential food items, the report added.

Published in the Express Tribune, June 2nd, 2010.


Meekal Ahmed | 14 years ago | Reply If the central bank sees CORE inflation rising in the months ahead it had better be ready to tighten (not loosen) monetary policy and do it as soon as possible because of the long lags involved between taking policy action and outcomes. That would not be good news for the nascent economic recovery. It could knock off 0.4-0.5% from projected economic growth (unless off-set by, for example, better-than-expected export performance) but should help in subduing inflationary pressures and expectations of inflation.
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