High prices to haunt Pakistan

KARACHI: Pakistan continues to reel under high inflation. The country’s general inflation measured by the Consumer Price Index (CPI) clocked-in at a two-year high of 13 per cent in January, as prices of almost all commodities and utilities maintained a rising trend.

Experts say the inflation in January 2022 rose 13 per cent on a year-on-year basis against a 5 per cent rise in January 2021 led by low-base effect and higher food inflation. However, on a month-on-month basis, the inflation rose 0.4 per cent.

“The 13 per cent rise on a year-on-year basis is largely due to the low-base effect. The inflation rate in the corresponding period of the previous year was too low,” an independent economic analyst, said.

“Higher import bill, twin deficits, record high energy and petrol prices, and weakening rupee are also affecting the overall price index,” he said.

Ahsan Mehanti, managing director of Arif Habib Commodities, said that Pakistan’s economy is impacted by severe rupee depreciation in FY21 at the behest of speculators and current account deficit, owing to trade deficit.

“This depreciation has caused imported inflation paralleled by soaring crude oil prices and palm oil prices, which is also one of the major imports,” he said.

The rupee during the current fiscal year remained under pressure. The local currency fell Rs18.89, or 11.99 per cent, against the dollar from Rs157.54 on June 30, 2021 to the present level of Rs176.43.

Food inflation in January 2022 rose 12.8 per cent, compared with an increase of 10.3 per cent in December 2021. Higher year-on-year food inflation was driven by an uptick in the prices of cooking oil (up 54 per cent), pulse masoor (up 41 per cent), meat (up 22 per cent), and wheat (up 15.8 per cent).

“Food inflation was the highest since April 2021 when it rose to 15.9 per cent. We attribute this to higher transportation cost and higher global food and commodity prices,” Umair Naseer, an analyst at Topline Research, said.

However, on a month-on-month basis, pressure on food prices have started to subside, as January 2022 food inflation was down 0.5 per cent after a decline of 3.4 per cent MoM in December 2021.

The latest figures released by the Pakistan Bureau of Statistics (PBS) showed that the CPI inflation urban, increased 13 per cent on a year-on-year basis in January 2022, compared with an increase of 12.7 per cent in the previous month and 5 per cent in January 2021.

On a month-on-month basis, it increased 0.1 per cent in January 2022, compared with an increase of 0.3 per cent in the previous month and a decrease of 0.2 per cent in January 2021.

The CPI inflation rural, increased 12.9 per cent on a year-on-year basis in January 2022, compared with an increase of 11.6 per cent in the previous month and 6.6 per cent in January 2021.

On a month-on-month basis, it increased 0.9 per cent in January 2022, compared with the decline of 0.5 per cent in the previous month and a decrease of 0.3 per cent in January 2021.

The inflation based on the Sensitive Price Indicator (SPI) on a year-on-year basis increased 20.9 per cent in January 2022, compared with an increase of 20.9 per cent a month ago and an increase of 7.7 per cent in January 2021.

On a month-on-month basis, it declined 0.8 per cent in January 2022, compared with a decrease of 0.4 per cent a month earlier, and a decline of 0.8 per cent in January 2021. The Wholesale Price Index (WPI) inflation on a year-on-year basis increased 24 per cent in January 2022, compared with an increase of 26.2 per cent a month earlier, and an increase of 6.4 per cent in January 2021.

The WPI inflation on a month-on-month basis increased 0.6 per cent in January 2022, compared with a decline of 0.2 per cent a month ago, and an increase of 2.5 per cent in the corresponding month of 2021.

On January 23, 2022, the State Bank of Pakistan (SBP) maintained the monetary policy at 9.75 per cent for the next two months.

In a statement, the SBP said that looking ahead, and against the backdrop of the developments that have improved the inflation outlook, the MPC was of the view that the current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5 to 7 per cent, support growth, and maintain external stability.

While announcing the monetary policy, SBP Governor Dr Reza Baqir admitted that the present inflation rate is high; however, this will decline next year.

“Inflation is expected to rise in the short-term but it will gradually stabilise,” Dr Baqir said, adding that the aim of the central bank’s policies is to keep the inflation rate within a range of 5 to 7 per cent.

Highlighting the reason behind the soaring prices of commodities in the local market, he said that prices are temporarily high because of surging prices in the international market.

Umair Naseer said that with the rising oil prices and expected increase in the power tariff, monthly CPI inflation is likely to remain in the range of 11 to 13 per cent during the remainder of FY22.

“We also expect the inflation to average 11 per cent in FY22, compared with 8.9 per cent in FY21. This will be at the higher end of the inflation range the SBP has forecasted for FY22 of 9 to 11 per cent for FY22,” he added.