Inflation slows down for 2nd straight month, stands at 6.2%

Pace eases on back of notable drop in vegetable, petroleum product prices

KARACHI: Defying expectations, the rate of inflation slowed down for the second consecutive month in December 2018 and came in at 6.2% mainly due to a notable drop in vegetable and petroleum product prices.

“CPI inflation...increased by 6.2% on a year-on-year basis in December 2018,” the Pakistan Bureau of Statistics (PBS) stated in a brief commentary on Wednesday.

“A drop in prices of perishable goods like vegetables, onion and potato provided the basis for the slowdown,” commented Sherman Securities’ analyst Chander Kumar while talking to The Express Tribune.



Apart from that, the drop in petroleum product prices at the outset of December also aided the slowdown in inflation, better known as the Consumer Price Index (CPI).

Petroleum products, which fall within the transport sector, however, did not leave as high an impact as the perishable goods due to their comparatively lower weightage of around 7% in the inflation index. The weightage of perishable goods stood at around 35%, he said.

The foods and non-alcoholic beverages category dropped 1.6% while transport fares fell 0.7% in December 2018. Securities brokerage houses had anticipated that the CPI inflation would stay in the range of 6.5-6.9% in December, the analyst pointed out.

The market was expecting a surge in inflation following a sharp depreciation of the rupee against the US dollar in late November and government’s administrative measures to boost its revenues, he said. The PBS reported that the rate of inflation had been 6.5% in November and 6.8% in October.

Average CPI in the first half (July-December) of the current fiscal year grew 6.05% year-on-year. It is, however, expected to rise in the second half because of an anticipated hike in energy prices and likely increase in taxation measures to bridge the yawning fiscal gap.

Keeping all this in view, the brokerage houses revised their estimates for FY19 inflation, keeping it in the range of 7% to 7.5%. The SBP’s forecast puts it between 6.5% and 7.5%.

Core inflation at 54-month high

Core inflation - the non-food and non-energy inflation - continued to accelerate in December 2018. It rose to a four-and-a-half-year high of 8.4%, according to tradingeconomics.com.

“Core inflation has been on the rising trend for the past seven consecutive months,” the analyst said.

Some of the economists consider core inflation as more important than the overall CPI as it depicts a non-volatile pricing trend because it excludes the rapid fluctuation in food and energy prices.

Core inflation jumped mainly due to an increase of 1.4% in prices of miscellaneous goods and services, followed by restaurants and hotels at 1.1%, furnishing and households 1%, clothing and footwear 0.6%.



Alcoholic beverages and tobacco prices rose 0.4%, the cost of health and education increased 0.3% each and recreation and culture cost enhanced 0.1%, according to the data compiled by the securities brokerage house. Core inflation went north, indicating rising inflationary pressures. “Bulk of the non-food and non-energy items exhibited a monthly increase of more than 60 basis points,” Topline Securities said in a commentary.

“Despite significant rupee depreciation in 2018, the food inflation remained benign and averaged 2-2.5% in the year. This is likely because of better and sustained food supplies,” it added.

“We expect food inflation to increase on the back of expected rise in energy prices and lagged impact of rupee devaluation.”

Published in The Express Tribune, January 3^rd, 2019.

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