Inflation above 6% for second month

The inflation rate stayed above 6.1% for the second consecutive month but the underlying inflationary pressure receded in November amid strong calls to cut interest rates to reflect ground realities.

The Pakistan Bureau of Statistics (PBS) reported on Monday that the headline inflation rate remained stable around 6.1% in November compared to a year ago. But the other two indicators, the monthly inflation and non-food, non-energy inflation decelerated, which showed that there was no buildup of price pressure last month.

The central bank has been resisting demands from the business community and Prime Minister Shehbaz Sharif to reduce the interest rate to single digits in line with the prevailing inflationary trends. The monetary policy committee of the central bank has kept the interest rate unchanged despite significant room for a reduction.

"If you look at foreign exchange reserves and the macro outlook, interest rate must also be reduced," said Lt General Sarfraz Ahmad, National Coordinator of the Special Investment Facilitation Council, last week while speaking to a gathering of business leaders.

He said that the central bank "cannot keep interest rate permanently at 11% or 12%. Inflation is going down and monetary policy must reflect the ground reality".

The Ministry of Finance said last week that Pakistan's economic outlook remained cautiously optimistic, as industrial activity continued to strengthen amid implementation of economic reforms.

It said that inflation was expected to remain in the range of 5% to 6% in November due to pressures on food prices and agricultural output, according to the monthly report of the ministry. But the headline rate remained slightly higher than the ministry's upper band.

PBS reported that in urban areas, inflation slightly accelerated to 6.1% on a year-on-year basis, but the pace slowed down to 6.3% in rural areas and towns.

However, core inflation, which is calculated after excluding food and energy items, significantly slowed down. The core indicator suggests whether the rise is temporary or reflects longer trends.

PBS said that, measured by non-food and non-energy items, core inflation slowed down to 6.6% in urban areas compared to 7.5% in the previous month. Likewise, the core inflation in rural areas eased to 8.2% compared to 8.4% in the previous month.

Last month, the World Bank revised upwards its inflation forecast for Pakistan to 7.2% for the current fiscal year, which was slightly above the target.

The central bank had earlier said that inflation would temporarily increase this year because of floods and would start slowing during the latter part of the second half of the fiscal year. The central bank has kept the interest rate unchanged at 11%, which is far higher than the headline inflation.

It is maintaining interest rate far above prevailing inflation levels, even as it projects that the economic growth target of 4.2% will again be missed this fiscal year. Finance Minister Muhammad Aurangzeb said on Monday that summer floods had impacted economic growth by half a percentage point.

Data showed that food price inflation accelerated to 5% in cities but eased to 5.9% in rural areas, due to some downward movement in prices of perishable food items.

Prices of sugar were 39% higher than a year ago after sugar millers managed to delay the crushing season to reap benefits of limited availability of the commodity. Butter became expensive by 27% and wheat by 22%. Gas charges increased 23% on an annual basis and electricity prices rose 7.1% on a monthly basis.

Pakistan's economy has been struggling to create enough jobs for new entrants and the constant price pressure has eroded the purchasing power of households. There has been a constant increase in the number of people going abroad in search of jobs.

According to the Ministry of Finance's monthly report, which is based on the data of the Bureau of Emigration & Overseas Employment, about 90,339 workers left Pakistan in October this year alone. There was an increase of 22.8% compared to September this year.