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Inflation spikes amid faltering economy

Updated July 05, 2018

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Food inflation rose by 3pc on a yearly basis while the non-food inflation was up 6.7pc as a result of higher oil prices and the rupee depreciation.
Food inflation rose by 3pc on a yearly basis while the non-food inflation was up 6.7pc as a result of higher oil prices and the rupee depreciation.

ISLAMABAD: Inflation perked up to 5.2 per cent in June from 4.2pc in the preceding month, the biggest increase in three years and seven months. The increase appears to be driven by a spike in food inflation in the month of June.

The inflation, measured through Consumer Price Index is steadily on the rise following the recovery in global commodity prices, consolidating domestic demand and depreciation of the rupee.

The average inflation in the first 12 months (July-June) of 2017-18 was 3.92pc as compared to 4.16pc in the corresponding period last year. However, it remains below projected annual target of 6pc for 2017-18.

The CPI tracks the prices of around 480 commodities every month in urban centres across the country.

In the outgoing fiscal year, nearly 14pc depreciation in the exchange rate has pushed up fuel prices as well as those of imported goods, while State Bank of Pakistan enhanced the discount rate by 75 basis points to 6.5pc.

Food inflation is up 3pc on an annual basis but surged 0.8pc on a monthly basis. Prices of non-perishable food items went up 0.26pc while those of perishable products up 4.9pc during the month.

Food items whose prices increased the most in June were tomatoes, up 41.66pc, potatoes 6.78pc, onions 6.18pc, fresh fruits 5.47pc, spices 1.41pc, meat 1.04pc, wheat flour 1pc, wheat 0.85pc, vegetable ghee 0.74pc, dry fruits 0.70pc, tea 0.68pc, sugar 0.62pc, beverages 0.41pc, and bakery & confectionary 0.31pc.

In the same category, betel leaves dipped 7.68pc month-on-month, eggs 3.74pc, besan 2.78pc, pulse mash 1.66pc, pulse masoor 1.62pc, pulse moong 1.59pc, fresh vegetables 1.46pc, gram whole 1.32pc, chicken 0.98pc and pulse gram 0.86pc.

On the other hand, non-food inflation was up 6.7pc year-on-year, and 0.4pc on a month-on-month basis.

The increase in the non-food inflation is mainly due to increase in oil prices in the past few months and the combined impact of the depreciation of the exchange rate and hike of crude oil prices in world markets was passed on to the consumers. During this period the fuel prices in international markets increased from $48.7 per barrel in July 2017 to $79pc in June 2018, an increase of 62pc.

The government passed on this increase to domestic consumers.

The non-food prices also remained under pressure on account of education index, which increased to 13.09pc on year-on-year basis. The other groups, clothing & footwear increased to 6.5pc, housing, water, electricity, gas & other fuel 5.55pc, furnishing & household equipment 6.04pc, health 5.5pc, transport 10.67 pc and recreation & culture 6.23pc.

Core inflation, measured by excluding volatile food and energy prices, was recorded at 7.1pc year-on-year, and 0.3pc on a month-on-month basis. Core inflation has been steadily rising for the past couple of months.

The gradual build-up of domestic demand is evident in the rising core inflation. Of the 89 commodity groups of CPI, it covers the price movement of 43 items.

The gradual build up of domestic demand is evident from rising core inflation, which measures non food, non energy prices, to over 7pc in June 2018. Due to the continuous increase in education and healthcare costs, core inflation remained higher on average compared to the same period last year.

Average inflation measured through the SPI slightly up 0.88pc in July-June 2018 as against 1.57pc in the previous year, while WPI was up 3.47pc compared to 4.04pc in the year 2016-17.

Published in Dawn, July 5th, 2018

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