Govt reports lower inflation despite price increase in commodities

Analysts question credibility of inflation data which seems unfazed by rupee depreciation and fuel prices .

ISLAMABAD:

In the midst of constant rising commodity and utility prices, affecting all segments of society alike, the federal government reported on Tuesday that the inflation rate decelerated to 7.4% in September year on year (YoY), compared to 8.5% in September 2012.

The Pakistan Bureau of Statistics reported that the Consumer Price Index (CPI), a basket of 487 goods and services capturing change in prices, decelerated to 7.39% in September 2013 over the comparative period of the last year. Last month (August 2013) the inflation rate was recorded at 8.6%.

The latest inflation figures have surprised many as even the economic planners had projected that increases in inflation rate will remain steady due to an increase in the prices of electricity for industrial and commercial consumers and a hike in petroleum products, announced in August.

However, despite an increase in electricity and petroleum products prices, the PBS showed that electricity prices remained constant YoY in September while prices of motor fuel showed decreased by 5.5%.

The latest increases in the prices of electricity and petroleum products announced on Monday have not been taken into account. The impact of these increases will be added in the October CPI.

Another significant factor that should have fuelled inflation was the unprecedented printing of notes by the government, aimed at bridging the financing gap and retiring debt that the federal government owed to the commercial banks.

From July to September 16 this year, the State Bank of Pakistan (SBP) printed Rs797 billion notes, far more than the notes printed during the previous financial year.

While defending the printing of currency notes, Secretary Finance Dr Waqar Masood said that the federal government borrowed from the SBP only after the commercial banks disinvested Rs450 billion on hopes an of increase in discount rates.

“The September inflation figures suggest that inflation is not at all a monetary phenomenon in Pakistan and we should not talk about monetary overhang, as it has been established by PBS”, said Dr Ashfaque Hasan Khan, Dean of Business School of National University of Science and Technology while criticising the statistics body.

He suggested that inflation figures should be verified by a third party, may be by International Monetary Fund (IMF).

The September figures also suggest that the depreciation of rupee against the US dollar did not affect inflation rates. In last three months the rupee depreciated by over 6% in the interbank market while the pace of depreciation in the open market was over 9%.

Despite significant increases in the electricity prices, the commodity group of housing, water, electricity, gas and fuels saw an increase of only 6.6% in September 2013 over the comparative period last year, according to the PBS. The group’s weight in the CPI basket is about 29.4%.

The PBS has been facing a credibility dilemma, as users of PBS’ data question the authenticity of the official numbers.

For the current fiscal year 2013-14, the federal government has set to target inflation at 8%. Initial administrative, monetary and fiscal trends suggest the government will miss this target.

Average inflation in the first quarter of the current fiscal year (July-September) remained at 8.1%, according to the PBS.

While headline inflation rate decelerated, non-fuel and non-food inflation- known as core inflation- increased to 8.7% in September over August, a jump of 0.2% in a single month. Increasing non-food and non-fuel inflation risks leading to double digit inflation; this was not reflected in headline inflation.

Core inflation is taken as an indicator because it is not affected by seasonal price shocks, due to the exclusion of food and energy items.

Published in The Express Tribune, October 2^nd, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.