Short-term inflation reverses trend with 0.11% spike

High food prices drive inflation up, snap six-week falling streak

KARACHI:

The short-term inflation gauge, called the Sensitive Price Indicator (SPI), resumed its uptrend as it rose 0.11% in the week ended May 30, 2024, driven by the hike in food prices.

With the fresh SPI reading, a six-week falling streak has come to an end, according to the Pakistan Bureau of Statistics (PBS).

Inflation outlook suggests that food prices may stay high ahead of Eidul Azha in mid-June since consumption of vegetables like tomatoes and onions will rise significantly around the festival.

The increase in prices of essential commodities may provide an excuse to the central bank to keep its policy rate unchanged at the record high of 22% in the monetary policy meeting on June 10.

However, a likely sharp fall in the benchmark monthly inflation, measured by the Consumer Price Index (CPI), to over two-year low at 13-13.5% in May 2024, compared to the multi-decade high of 38% in May last year, may force the central bank to make the first policy rate cut in four years by around 100-200 basis points, according to market players.

It is imperative to slash the policy rate for reviving economic activities and creating job opportunities for new entrants.

According to the PBS, the SPI surged 21.40% in the week ended May 30, 2024 compared to the same week of last year. The SPI comprises 51 essential items and their data is collected from 50 markets across 17 cities of the country.

During the week under review, out of the 51 items, prices of 14 (27.45%) items increased, rates of another 14 (27.45%) items decreased while 23 (45.10%) items saw no price change compared to the previous week.

The week-on-week inflation rose 0.11%, led by tomato prices, which rose 11.25% to Rs65.56 per kg compared to Rs58.93/kg in the previous week. It was followed by onions, which cost 3.62% more at Rs100.54/kg compared to Rs97.03/kg.

Mash pulse price increased 2% to Rs556.67/kg compared to Rs545.75/kg a week earlier. Banana price went up 1.78% to Rs147.20/dozen compared to Rs144.63/dozen. Potato price rose 1.23% to Rs89.96/kg compared to Rs88.87/kg in the prior week.

Prices of other essential commodities increased up to 1.17% including curd, gram pulse, fresh milk, cigarettes, energy savers and georgette.

The 21.40% YoY increase in inflation was fuelled by gas charges for Q1, which shot up 570% compared to the same week of last year. It was followed by onion as its price surged 81.78%.

Published in The Express Tribune, June 1^st, 2024.

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