Inflation skyrockets to two-year high

ISLAMABAD:

The inflation rate steeply rose to 13% in January – the highest level in two years – due to a surge in prices of food, housing and transport, as the country also starts to embrace the worst impact of the inflationary mini-budget.

The Pakistan Bureau of Statistics (PBS) on Tuesday reported that the Consumer Price Index (CPI)-based inflation rate jumped to 13% in January over the same month a year ago. It was also the fifth consecutive month that the inflation rate constantly increased, largely due to administrative decisions of the government.

The 13% annual inflation rate is the highest since January 2020 when it had been recorded at 14.6%.
The government’s administrative decisions coupled with steep currency depreciation are making food, electricity and transport unaffordable for the common man.

After failing to rein in the price movements, the federal government has now entrusted the State Bank of Pakistan to ensure domestic price stability under a condition of the International Monetary Fund.

For the current fiscal year, the government had set the inflation target at 9%, which it has failed to meet since October last year when the reading shot to 9.2%. The central bank has also revised upwards its inflation projection to 11% but it was the consecutive third month that the inflation rate remained above that level too.

READ Inflation, price control laxity tax consumers

The Wholesale Price Index jumped to 24% in January, indicating that prices would remain very high in the coming months. The Sensitive Price Index, comprising goods largely used by the poor and lower middle income groups, also remained at 20.9%, according to the PBS.

 

The latest inflation reading suggests that prices have gone out of the control of the government, which has not yet fulfilled its promise to reduce ghee prices by Rs45 to Rs290 per kilo by slashing duties and taxes.

The CPI-based inflation accelerated to 13% in urban areas – the highest level in over two years. The inflation rate increased to 12.9% in villages and towns, according to the PBS.

The yearly inflation rate soared due to increase in the prices of food items, which are now taxed by the government. Although the prime minister and finance minister say that the people do not pay taxes, the government has slapped 17% general sales tax on almost every consumable item and 15% income tax on any call made in the country by anybody irrespective of income level.

The pace of food inflation accelerated to 13.3% in cities and to 11.8% in villages and towns last month. Prices of non-perishable food goods jumped significantly as people still awaited the government’s decision to reduce prices of cooking oil, sugar and wheat flour.

Non-food inflation rate slightly decelerated to 12.8% in urban areas and almost remained unchanged at 13.9% in rural areas in January, according to the national data collecting agency. It was the highest level since at least the last 12 years when non-food inflation had been recorded around this reading.

The surge in prices came amid a sharp fall in the rupee’s value over the past three months to around Rs177 a dollar. On May 3, the rupee had traded at Rs153.36 a dollar, which lost Rs24, or over 15% of its value.

READ Ministry sees further hike in inflation

The reduction in the rupee’s value is pushing up the cost of every imported commodity, including wheat, sugar, cooking oil, crude oil and raw material for industries. Core inflation – calculated by excluding food and energy items – increased to 8.2% in urban areas and 9% in rural areas last month, reported the national data collecting agency.

The core inflation-adjusted central bank’s real interest rate is still positive by nearly 1%, which does not warrant any further increase. The food group saw 12.8% increase in prices in January compared to the same month a year ago. Prices of non-perishable food items soared 13.8%.

The PBS stated that prices of various types of ghee and cooking oil were higher by 54% last month compared to a year ago. The inflation rate for pluses was over 41%, fruits 28%, meat 23% and vegetables 11.6%. Inflation rate for the housing, water, electricity, gas and fuel group – having one-fourth weight in the basket – increased 15.5% last month – a double-digit increase due to the government’s decision to increase prices of electricity by 56.2%.

Household equipment group’s prices increased 13% and transport group’s rates rose 23%, clothing and footwear group’s jumped over 11%, according to the PBS. Similarly, the dining cost at restaurants increased over 13%. The government has increased the GST rate on restaurants to 17% from 7.5% through the mini-budget.

The motor fuel was almost 36% expensive last month compared to a year ago. There is also 17% sales tax on match box and its prices were 18% higher in January than a year ago. The average inflation during the first seven months (July-January) period remained at double digits and stood at 10.3% -- far higher than the government’s target of 9% and initial projection made by the SBP.