Pakistan December CPI seen up 16 per cent

January 10, 2011

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“The main reason for the rise in inflation year-on-year is the low base effect along with the increase in food prices."

KARACHI: Pakistan's consumer price index probably rose 16 per cent year-on-year in December due to rising food prices, almost the same pace of inflation as in the previous month, a Reuters poll shows.

The index rose 15.48 per cent in November.

“The main reason for the rise in inflation year-on-year is the low base effect along with the increase in food prices, which rose around 10.9 per cent in December 2009 year-on-year, and expected to rise around 20 percent in December 2010,” said Asif Ali Qureshi, director at Invisor Securities.

Food prices have been increasing following summer floods, which are estimated to have cost Pakistan's economy nearly $10 billion. Analysts, however, said food prices may have declined month-on-month and inflation could have peaked in December.

The central bank is due to announce its monetary policy for the subsequent two months in January and analysts said it could increase its key policy rate on concerns of increasing  government borrowing from the State Bank of Pakistan.

The State Bank of Pakistan in November increased its key policy rate by 50 basis points to 14 per cent, its third consecutive rate rise in the past six months as it seeks to curb persistent inflation.

“Money supply growth is already on route to double digits and has been depicting a sharper increase in the second  quarter of fiscal year 2010/11, with government borrowing  being a prime driver, taking no heed despite continuous  monetary tightening,” said Farhan Bashir Khan, an analyst at  Invest Capital Investment Bank Ltd.

“We expect further tightening through discount rate hike as imminent in upcoming monetary policy.”