KARACHI: A shopkeeper waits for customers while selling spices and groceries items at the retail market on Thursday.—Reuters
KARACHI: A shopkeeper waits for customers while selling spices and groceries items at the retail market on Thursday.—Reuters

ISLAMABAD: With falling international commodity prices, the government on Thursday said the annual inflation in the outgoing fiscal year will ease to 10.7 per cent, down from the earlier projection of 11.8pc.

The Pakistan Economic Survey 2019-20 noted that the falling crude oil prices will further ease inflationary pressures and the government expects it to enter single- digit in next fiscal year (FY21).

The Covid-19 outbreak has weakened demand putting downward pressure on commodity prices but there is also a risk of supply disruption. On the other hand, the survey said that government action against hoarders and providing maximum relief to public through various packages including subsidised selling of goods at utility stores helped improve supply and control price hike.

The survey said the first seven months of the current fiscal year saw high inflationary pressures as CPI rose by 14.6pc in January, compared to 5.6pc in the same month last year, primarily due to a steep surge in food inflation.

The trend came about due to a number of factors such as temporary supply disruptions in perishables and higher transportation costs. The factor leading to supply chain disruption were the weather patterns; all the seasons in 2019 faced some shift from the usual time, which caused losses in the minor crops thereby increasing the reliance on imported foodstuff.

The government, after the emergence of the pandemic, took several policy, administrative and relief measures to help bring down inflation to single-digit. The rate fell to 8.5pc in April — third successive month showing a decline.

The government also announced an economic relief and stimulus package and reduced rates of petroleum products in March and April. The reduction in petroleum prices further decelerated the inflation rate as evident from the April numbers.

Moreover, fall in global commodities prices also helped ease inflation as oil futures prices plunged below zero for the first time in history in April.

The settlement price for WTI crude was -$40.0 on April 20, amid concerns about storage and a slump in global demand due to the pandemic. Currently, the crude benchmark Brent is trading at around $38 per barrel.

Palm and soybean oil prices fell to $609 per MT and $680 per MT respectively in April, showing a decline of 4.1pc and 9.1pc respectively from March. Malaysia ensured steady supply of tropical oil to global markets despite the slump.

The sharp decline in the Food and Agriculture Organisation Food Price Index in April marked the third consecutive monthly fall largely driven by the demand contractions. While vegetable oils and sugar witnessed more pronounced fall, the other sub-indices also registered lower values in April.

The export prices of all major cereals, except for rice and wheat, fell for the third consecutive month. Despite large global supplies, combined with generally favorable crop prospects, rise in wheat prices reflects strong demand.

The international maize prices registered a further decline in April, pressured by not only large supplies but also much weaker demand especially from the biofuel sector stemming from a plunge in crude oil prices.

By contrast, international rice prices extended their upward trend into a fourth straight month, reaching their highest level since June 2018.

The vegetable oil prices continued to decline in April stemming from fall in palm oil prices (for the second consecutive month), fueled primarily by uncertainties over the impact of the Covid-19 pandemic on global demand. Soya and rapeseed oil prices were affected by higher than expected crushing in the USA and eroding demand for biodiesel in the EU.

Global import demand for skim milk powder and whole milk powder dampened considerably, mainly due to disruptions in dairy supply chains with the imposition of containment measures to control the spread of Covid-19. The fallout caused the significant monthly dip in international sugar prices, as confinement measures imposed by several countries curtailed demand from out-of-home consumption.

In addition, the steep fall in crude oil prices exerted further downward pressure on sugar markets, as lower energy prices tend to boost the production of sugar instead of ethanol. This is notably the case in Brazil, the world’s largest sugar exporter.

Published in Dawn, June 12th, 2020

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