Inflation decreases to 3.66% YoY

 

  • CPI clocked in at 3.66 pc YoY, against 3.70pc YoY of December 2016.

 

Despite forecasts of increase by market analysts, the key inflation indicator for the month of January decreased to 3.66 per cent (year on year) – lowest in the last five months.

The Consumer Price Index (CPI), a basket of different price variables, including food items, transportation, rent, health services etc., raised to 0.2pc on a month-on-month basis in January 2017, against -0.7pc in December 2016, Pakistan Bureau of Statistic Reported on Monday.

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The figures released stated that the CPI clocked in at 3.66 pc YoY, against 3.70pc YoY of December 2016. Consequently, the average CPI for the fiscal year 2017 stood at 3.86pc YoY as compared to 2.25pc YoY during the corresponding period last year.

On month on month basis, CPI grew by 0.18pc in the month ended, largely on account of upward revision in quarterly house rent index, which grew by 1.42pc. While health, transport and  Alcoholic Beverages & Tobacco having weights in CPI basket of 2.19pc, 7.2pc and 1.41pc also witnessed an incline of 6.4pc, 0.47pc and 1.24pc, respectively during the outgoing month.

On the other hand, Food &Beverages index (34.8pc weight in CPI basket) witnessed a decline of 1.17pc month on month due to significant fall in the prices of tomatoes, potatoes and fresh vegetables by 40pc, 30pc and 10.5pc, respectively.

“The CPI is in line with our expectations,” said Zeeshan Afzal of Insight Securities. “The concept of soft inflation which clocks in below the overall expectations is prevailing in the market currently. This is mainly because of decrease in food prices.”

He further explained the government has said that it expects the average inflation rate of the year to stand at 6pc. On the other hand, analysts estimated it to be between 4.5 and 5.5pc. The inflation rate of January, however, has decreased the estimate to 4 and 4.2pc.

Contrary to the given, a report by Sherman Securities stated that they anticipate the inflation to rise in the coming months, largely on account of an upward trend in domestic fuel prices and low base effect.

Market analysts are also stating that the outlook of interest rate might change due to the decrease in inflation rate. “Because of this unexpected decrease, we think the interest rate will remain low.” Afzal from Insight Securities concluded.

Oil prices can affect the inflation rate, many said, mainly because the government has decided to switch back to fortnightly determination of the prices of Petrol. However, Economist Muzammil Aslam believes that no matter when the prices are revised, whatever happens in the international market is likely to affect the domestic market.

On the other hand, Aadil Nakhoda, Economist and Assistant Professor at Institute of Business Administration, believes that the move will give the government more control on price inflation vis-a-vis oil prices.

“It can lead to more predictability in price changes as frequency increases. However, this will also give the government greater leverage in oil price adjustment,” Nakhoda explained.

“If food and power prices remain in control for the next few months, the number can remain stable,” Aslam said. “However, I believe labor prices can hike because of new projects being introduced in the market.”

The economist also said that steel and cement prices have recently gone up. If the trend continues, the development sector is likely to face the brunt.

Inflation hurts households the most because it limits their purchasing power and makes it difficult to buy the items needed for day to day living. Aslam believes that food prices can go up and as they are the core element, they can affect low income households in the months to come.

 

 

 

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