Pakistanis expect low inflation in coming months: survey

March edition shows ‘no significant change’ than previous one in January.

KARACHI:

People expect low inflation in coming months, according to a recent survey jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA).

The March edition of the bi-monthly SBP-IBA Consumer Confidence Survey shows “no significant change” compared to its previous edition that came out in January. “Though there is a marginal decrease in the share of respondents expecting lower inflation, generally inflation expectations too remain approximately at their January 2015 level,” the SBP wrote in its brief commentary on the survey.

The survey covers three broad themes: overall consumer confidence indices, inflationary expectations and other key highlights about households’ perception of important indicators.

The survey uses the Consumer Confidence Index (CCI) to measure households’ perceptions about the economy. Showing a nominal increase of 0.1% over the last survey released in January, the CCI stood at 154.1 points in March – its highest level since its inception three years ago.

Similarly both of the sub-indices, namely Current Economic Conditions (CEC) and Expected Economic Conditions (EEC), almost remained at their January levels.



The survey reveals that Pakistanis believe prices of everyday items and services will increase at a slower-than-usual pace in months ahead. It is important to note that the expectations about inflation actually play a most significant role in determining the overall price level in an economy. Economists believe prices go up partly because people expect them to rise.

Year-on-year inflation in February clocked up at 3.24%. According to Taurus Securities Head of Research Zeeshan Afzal, year-on-year inflation in March will likely be 2.6% as opposed to 8.5% in the same month of the preceding year. Declining inflation is due to the lower food prices, especially perishable food items, and fuel prices that have tamed overall commodity prices in the country, he added.

Afzal said inflation for 2014-15 is likely to clock up at 4.5%, which would be lowest after 2002-03. The central bank brought down the key interest rate on March 21 by 0.5% to 8% mainly on the back of declining inflation. It has also revised its inflation projection for 2014-15 from 8% to 4%-5%.

Afzal expects the SBP to slash the key interest rate by another 0.5% to 7.5% by the end of the current fiscal year partly because of a ‘benign inflation outlook’.

The percentage of households expressing interest in buying a car or a house in the next six months increased in March compared to January, according to the SBP-IBA survey. Similarly, a higher percentage of people in March are ‘positive’ about their income a year later compared to January.

Published in The Express Tribune, April 1^st,  2015.

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