CPI: Monthly inflation slows down

Analysts sceptical of PBS’s calculation method.

ISLAMABAD:

For the second month in a row, the inflation rate slowed down.

In January 2014, it was recorded at 7.9% compared to the same month previous year, according to the Pakistan Bureau of Statistics (PBS), in what analysts say is a result of a reduction in the prices of perishable food items due to their better availability in the market.



The Consumer Price Index (CPI) – the main national indicator reflecting change in prices of basket of goods and services – clocked in at 7.9% in January 2014, showed the data released by the PBS on Monday. The CPI lowered after it peaked to 10.9% in November 2013 and slipped to 9.2% the next month.

The printing of currency notes, a major contributing factor, is not fully reflected in the CPI-based inflation, which, according to analysts, is the methodology problem. The PBS has long been facing a credibility dilemma, as users of the PBS data always question the authenticity of the official numbers.

The underlining inflationary pressure has eased out for the time being, said Muzammil Aslam, a Karachi based economist who is the managing director of his consultancy firm, Emerging Economics Research. He said price pressure was lessening and overall inflation rates slowed down due to reduction in food inflation.

In January 2014, the rate of food inflation reduced to 7.2% on year on year basis, an index that had been recorded at 9.3% in December 2013. The inflation rate of perishable food items was registered at 8.6%, while for the non-perishable food items it was at 6.4%.

On year-on-year basis, there was significant reduction in the prices of pulses. Tomato rates also fell down by one-fifth.

Another factor that helped stabilise the inflation rate was the government’s decision to keep the prices of petroleum products unchanged for last three months, said Aslam. Non-food inflation rate slowed down to 8.4% in January over the same month of the previous year, according to the PBS. The non-food inflation rate had been recorded at 9.4% in November 2013, which fell down to 9.1% in December 2013.

On a yearly basis, the commodity group of housing, water, electricity, gas and fuels saw an increase of 9.3% in January over the comparative period of the last year, according to the PBS. The inflation rate for the group of clothing and footwear registered at over 16% and for the groups of transport and communication the rates remained below 6% in January over a year ago.

Average inflation in the first seven months of the current fiscal year (July-January) remained at 8.8%, according to the PBS. Non-fuel and non-food inflation, known as core inflation, also decelerated to 8% in January.

The average inflation figures are somehow in line with the projections of the International Monetary Fund (IMF). In the first review of the $6.7 billion IMF programme, the IMF kept its inflation projection unchanged at 7.9% for the current fiscal year 2013-14 and, instead, asked the government to increase interest rates to control inflation – a strategy that experts say will further fuel inflation.

For the current fiscal year 2013-14, the federal government has set to target the inflation at 8%. But independent economists suggest that due to administrative and monetary measures the inflation will touch 12%.

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Published in The Express Tribune, February 4^th, 2014.

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