Spiral hike: Inflation bounces back, in double digits again

CPI rises 10.9% on excessive currency printing, rise in prices of commodities.

ISLAMABAD:

Inflation in Pakistan bounced back to double digits after a gap of 16 months and hit 10.9% in November despite apprehensions about keeping the figure at a lower level, highlighting the impact of excessive currency note printing and rise in prices of commodities and utilities.

Data released on Monday by the Pakistan Bureau of Statistics (PBS) – the national data collecting agency – showed that the Consumer Price Index (CPI) had been continuously rising and stood at 10.9% in November over the same period of last year.

This is a steep rise of 1.8 percentage points compared to 9.1% in October that has pushed the index into double digits, pointing to the underlying inflationary pressures due to increase in prices of utilities and other essential items.

Last time, inflation had been recorded in double digits at 11.3% in June 2012 and after that the indicator had started decelerating. In June 2013, when the PML-N took reins of the government, inflation was registered at 5.9% that almost doubled in just five months.

“Excessive printing of money, rise in wheat prices that serve as a benchmark for all food items, increase in general sales tax rate and revision in tariffs of electricity pushed inflation into double digits,” said Dr Ashfaque Hasan Khan, Dean of Business School of National University of Science and Technology.

He said during 131 days of the new government, the State Bank of Pakistan printed Rs751 billion worth of fresh notes – an average of Rs5.73 billion a day and Rs239 million per hour.

According to the SBP, in November tomato prices soared 216% over the same month of last year. Potato prices rose 117%, onions 72%, fresh vegetables 31.6%, wheat 27.4%, wheat flour 26.5% and wheat products 21.3%.

On average, there was over 43% increase in prices of perishable food items while clothing and footwear group’s rates rose 14%.

In a recently concluded first review of the IMF programme, the lender kept its inflation projection unchanged at 7.9% for the current fiscal year 2013-14 and asked the government to increase interest rates to control inflation – a strategy that experts say will further fuel inflation.

The IMF has come under criticism for preparing a “faulty” design of the $6.7 billion loan programme as every noted economist is opposing the design.

The PBS data showed that electricity prices for domestic consumers increased 15.82% in November over a year ago – a figure far lower than the increase that the government passed on to the end consumers to recover the cost of electricity. The Ministry of Finance has estimated the average increase at over 30%.

Despite a pledge to shield the low-income group from price escalation, the government has increased electricity prices by 40% for those who use less than 200 units a month. However, this is not reflected in the PBS statistics.

The PBS has been facing a hard time, as users of its data always question the authenticity of official numbers.

Despite suppressing the figures, the commodity group of housing, water, electricity, gas and fuels recorded an increase of 9.6% in November over the comparative period of last year, according to the PBS. The group’s weight in the CPI basket is about 29.4%.

For the current fiscal year, the government has set the inflation target at 8%. But independent economists believe that the figure will touch 12% because of the administrative and monetary measures taken by the government.

Average inflation in the first five months of the current fiscal year (July-November) stood at 8.84%. Non-fuel and non-food inflation, called core inflation, was 8.5% in November.

Published in The Express Tribune, December 3^rd, 2013.

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