Price movements: Deflationary fears emerge as inflation at 11-year low
Consumer Price Index hits 3.24% in February, sparking rate cut hopes.
According to the PBS, in February the food and non-alcoholic beverages group inflation rose to only 1.1% on year-on-year basis. PHOTO: ZAHOORUL HAQ/EXPRESS
ISLAMABAD:
Amid concerns over deflation that according to a school of thought has already begun, inflation rose 3.2% in retail markets in February over a year ago, reported the Pakistan Bureau of Statistics (PBS) on Monday.
Inflation measured by the Consumer Price Index (CPI) remained at an 11-year low for the fourth consecutive month and stood at 3.24%, said the national data collecting agency.
The CPI tracks prices of 481 commodities every month in the retail market.
The slowdown sparks expectations of a further cut in the discount rate. The State Bank of Pakistan slashed the discount rate by 100 basis points to 8.5% in its last monetary policy announcement.
Some board members were in favour of a minimum 150-basis-point reduction but the finance secretary, who is also a board member, supported the 100-basis-point reduction.
Wholesale Price Index
The Wholesale Price Index that captures prices in the wholesale market fell for the third consecutive month and touched a negative 3.4% in February over a year ago, said the PBS.
The impact of reduction in prices in the wholesale market appears in the retail market with a lag of about six months, according to independent economists.
The underlying inflationary pressures also seemed to be easing, as the fuel and food-adjusted inflation, known as core inflation, slowed down to 6.2% on a year-on-year (YoY) basis in February, a reduction of 0.2% over the previous month. Additionally, core inflation came down for the sixth consecutive month.
On monthly basis, the CPI-measured prices also turned negative. The CPI decelerated almost 1% in February over January. A debate has already started whether the country was heading towards deflation – a period when there is low level of demand in the economy, which ultimately leads to economic depression.
Dr Ashfaque Hasan Khan, former adviser to the Ministry of Finance, has been arguing that the country has already entered a deflationary phase. In addition to quoting official price statistics to substantiate his claim, Khan also cites the example of slowing growth in large-scale manufacturing and declining tax revenues.
His arguments were contested by Secretary Finance Dr Waqar Masood, former State Bank governor Dr Ishrat Husain and Finance Minister Ishaq Dar during a recently held meeting of the Economic Advisory Council.
The opponents of deflation argued that the CPI and WPI were capturing the price trends only in the formal sector of the economy. Husain and Masood were of the view that in the informal sector the prices were still increasing that would avert chances of deflation, said Dar while talking to The Express Tribune.
However, the government’s argument against deflation strengthens hands of those who say the CPI was not capturing the real price trends in the economy and monthly inflationary bulletin was no more reliable source of information.
According to the PBS, in February the food and non-alcoholic beverages group inflation rose to only 1.1% on year-on-year basis. In February, there was an increase of 1% in non perishable food items while the perishable food items soared only 2.2% over a year ago.
The average inflation during eight months of the current fiscal year (July-February) rose to 5.5% as compared to the same period of the previous fiscal, according to the PBS.
For the new fiscal year, the government has set the inflation target at 8%, which it is expected to achieve on back of reduction in commodities prices in the international market. The reduction in the pries of petroleum products remained the main driving force behind steep decline in overall inflation index.
Published in The Express Tribune, March 3rd, 2015.
Amid concerns over deflation that according to a school of thought has already begun, inflation rose 3.2% in retail markets in February over a year ago, reported the Pakistan Bureau of Statistics (PBS) on Monday.
Inflation measured by the Consumer Price Index (CPI) remained at an 11-year low for the fourth consecutive month and stood at 3.24%, said the national data collecting agency.
The CPI tracks prices of 481 commodities every month in the retail market.
The slowdown sparks expectations of a further cut in the discount rate. The State Bank of Pakistan slashed the discount rate by 100 basis points to 8.5% in its last monetary policy announcement.
Some board members were in favour of a minimum 150-basis-point reduction but the finance secretary, who is also a board member, supported the 100-basis-point reduction.
Wholesale Price Index
The Wholesale Price Index that captures prices in the wholesale market fell for the third consecutive month and touched a negative 3.4% in February over a year ago, said the PBS.
The impact of reduction in prices in the wholesale market appears in the retail market with a lag of about six months, according to independent economists.
The underlying inflationary pressures also seemed to be easing, as the fuel and food-adjusted inflation, known as core inflation, slowed down to 6.2% on a year-on-year (YoY) basis in February, a reduction of 0.2% over the previous month. Additionally, core inflation came down for the sixth consecutive month.
On monthly basis, the CPI-measured prices also turned negative. The CPI decelerated almost 1% in February over January. A debate has already started whether the country was heading towards deflation – a period when there is low level of demand in the economy, which ultimately leads to economic depression.
Dr Ashfaque Hasan Khan, former adviser to the Ministry of Finance, has been arguing that the country has already entered a deflationary phase. In addition to quoting official price statistics to substantiate his claim, Khan also cites the example of slowing growth in large-scale manufacturing and declining tax revenues.
His arguments were contested by Secretary Finance Dr Waqar Masood, former State Bank governor Dr Ishrat Husain and Finance Minister Ishaq Dar during a recently held meeting of the Economic Advisory Council.
The opponents of deflation argued that the CPI and WPI were capturing the price trends only in the formal sector of the economy. Husain and Masood were of the view that in the informal sector the prices were still increasing that would avert chances of deflation, said Dar while talking to The Express Tribune.
However, the government’s argument against deflation strengthens hands of those who say the CPI was not capturing the real price trends in the economy and monthly inflationary bulletin was no more reliable source of information.
According to the PBS, in February the food and non-alcoholic beverages group inflation rose to only 1.1% on year-on-year basis. In February, there was an increase of 1% in non perishable food items while the perishable food items soared only 2.2% over a year ago.
The average inflation during eight months of the current fiscal year (July-February) rose to 5.5% as compared to the same period of the previous fiscal, according to the PBS.
For the new fiscal year, the government has set the inflation target at 8%, which it is expected to achieve on back of reduction in commodities prices in the international market. The reduction in the pries of petroleum products remained the main driving force behind steep decline in overall inflation index.
Published in The Express Tribune, March 3rd, 2015.