Inflation clocks in at 10.9% in May 2021

Remains in double digits for second successive month due to increase in energy, food prices

Shahbaz Rana June 02, 2021


The inflation rate remained in double digits for the second successive month and stood at 10.9% in May due to increase in energy and food prices amid low chances of any respite because of recent hike in electricity prices.

The Pakistan Bureau of Statistics (PBS) reported on Tuesday that the Consumer Price Index (CPI) rose to 10.9% in May over the same month a year ago. The 10.9% inflation rate is higher than up to 9.8% projection given by the Ministry of Finance last week. The inflation bulletin has been released three days after the State Bank of Pakistan (SBP) decided to maintain the policy rate at 7%.

The central bank noted that supply shocks to food and energy still dominate, with a small number of energy and food items in the CPI basket accounting for about three-fourths of the rise in inflation since January.

The SBP has maintained its earlier forecast that “the headline year-on-year inflation rate is likely to remain elevated in the coming months due to the recent electricity tariff hike, pushing the average for FY21 close to the upper end of the announced range of 7-9%.”

The Wholesale Price Index (WPI), which captures prices in the wholesale market, also rose sharply to 19.4% in May over the same month a year ago - a surge of 2.8% in a single month. Usually, the retail market prices reach the wholesale price levels in four to six months, indicating that the prices will remain high in the near term. The government last week approved the average inflation target for the next fiscal year at 8%, indicating that the year-on-year inflation may remain in double digits in fiscal year 2021-22.

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PBS reported that the prices remained significantly high in both rural areas and the cities, although the pace of increase was slower than the preceding month but still in double digits. The inflation rate in urban areas increased to 10.8% in May and in rural areas to 10.9%.

The food inflation rate in cities increased to 15.3% and in villages and towns to 12.8%, which was relatively lower than the previous month.

Non-food item prices also remained elevated both in rural areas at 9.2% and in urban areas at 8.3%. Core inflation - calculated by excluding food and energy items -decelerated slightly to 6.8% in urban areas in May, reported the national data collecting agency.

The food group saw a price increase of 14.8% in May from the same month a year ago. Within the food group, prices of non-perishable food items rose 18.2% on an annualised basis. The inflation rate for the housing, water, electricity, gas and fuel group - having one-fourth weight in the basket - increased to 8.4% last month.

Average prices for the clothing and footwear group rose 10.6% in May. Prices related to transportation rose 14% due to higher fuel cost.

The average inflation rate for July-May period of the current fiscal year came in at 8.83%, which was far higher than the official target of 6.5%, according to the PBS. PBS stated that petrol prices were 25.4% higher in May this year over a year ago despite the government not increasing prices for a couple of months. Electricity rates were higher by 22% than a year ago.

In May, chicken prices shot up by 60%, followed by 55% increase in prices of eggs, 31% rise in prices of mustard oil and wheat prices were up by 30% over a year, according to the PBS. As part of an investigation, the Competition Commission of Pakistan on Tuesday carried out search and inspection of Pakistan Poultry Association and one of its members in Lahore for their suspected involvement in cartelisation and anti-competitive activities in the poultry sector.

The CCP noted that from March 2020 to May 2021, chicken prices experienced a rise of 110%, reaching Rs325 per kg. Similarly, egg prices too saw a rising trend from March 2020 to May 2021, rising 42% to touch a peak of Rs197.7 per dozen in December 2020.

The CCP has issued show cause notices to 19 feed companies for cartelisation and a collective increase in feed prices, which resulted in an increase in the prices of chicken and eggs

The wheat and wheat flour prices would remain under pressure, as production has fallen short of wheat consumption by at least two million metric tons. The wheat flour prices were higher by 28.5% in May, said the national data collecting agency.

Published in The Express Tribune, June 2nd, 2021.

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