Bucking the trend: Inflation hits lowest level in five and a half years

Statistics secretary says better supply of food items keeps inflation at 6.9%.

ISLAMABAD:

The government has claimed price stability as inflation has dropped to pre-2008 economic crisis level, standing at 6.93% in November over a year ago.

Inflation based on the Consumer Price Index (CPI) rose 6.93% in November over the corresponding period of last year, announced Sohail Ahmad, Secretary of Statistics Division while unveiling the latest figures here on Monday.

“It was the lowest rate of increase since July 2008”, the month when the government rebased the CPI basket and also changed calculation methodology by adding more goods and changing weights assigned to every product.

It was also the lowest level recorded precisely after five and a half years. Last time, the inflation stood that low was in May 2007, when the figure was 6.92%.

Ahmad said all inflation indices – the CPI, Sensitive Price Index and Wholesale Price Index – showed price stability, adding in November the CPI-based inflation actually dropped 0.4% over October this year.

For the first time since July 2011, the core inflation – excluding volatile energy and food prices – slipped to single digits at 9.7% in November over a year ago, said Ahmad. However, double-digit inflation was still recorded in the categories of transport, health, household equipment, recreation and culture, hotels, clothing and footwear and alcoholic beverages and tobacco.

The reasons

Ahmad said the single-digit inflation was largely because of improved supply of food items, especially essential products like sugar and wheat that also determine price trends of other commodities.

He said import of vegetables and fruits from India due to trade normalisation was benefitting the consumers and helping in maintaining price stability. All basic items like onions, potatoes and tomatoes were available in abundance, he said.

However, Ahmad pointed out that average inflation for the first five months (July-November) of the current fiscal year was at 8.4%, suggesting that “inflation is still reasonably high.”

While the Statistics Division claims that prices have largely settled, the Planning Commission and International Monetary Fund (IMF) expect the double-digit inflation to return.



In its latest report on Pakistan, the IMF says inflation has decelerated recently, but is likely to return to low double digits by the end of fiscal year 2012-13. It has forecast that yearly inflation will climb to 11.3% by June next year.

“The SBP’s direct lending to the government and provision of liquidity to facilitate bank purchases of government securities has accommodated higher deficits at the cost of higher inflation and currency depreciation,” says the IMF in its Post-Programme Monitoring report.

PC officials are of the view that the fall in inflation is the result of somewhat stable prices of food items and a high base effect. They expect inflation to start picking up again from December because of erosion of the base impact and the increase in wheat support price by 14.3%.

PC’s reports also suggest that the government’s decision to reduce gas-price slabs from four to three was also giving a benefit of one percentage point. Had the slabs been not revised, inflation would have been 7.93% in November.

The government not only reduced the slabs but also the rates. Compared to the price of Rs1,280 per million British thermal units (mmbtu) and Rs1,500 per mmbtu for third and fourth slabs respectively, the new rate for the last, the third slab, is Rs580 per mmbtu, said Shaukat Zaman, Director Prices of the Pakistan Bureau of Statistics.

Published in The Express Tribune, December 4^th, 2012