Inflation measured by Consumer Price Index (CPI) – the indicator that captures prices of 481 commodities every month – rose to 1.61% in October on a year-on-year basis, reported the Pakistan Bureau of Statistics (PBS) on Monday.
The headline consumer price inflation had declined to over a decade low of 1.3% year-on-year in September due to a massive reduction in prices of food and energy products.
The government and International Monetary Fund (IMF) expect that this trend would now reverse because of the base effect’s erosion and upward adjustment of commodity prices.
The IMF thinks that as against the official target of 6%, the 12-month average inflation is expected to remain around 4.7% by the end of this fiscal year due to the likely bottoming out of commodity prices.
It is also expected that the government will “anchor inflation well” with continued prudent monetary and fiscal policies – an indication that the IMF will not allow a further cut in interest rate and a loose fiscal policy.
In its last monetary policy announcement, the State Bank of Pakistan cut the interest rates to over a four-decade low of 6% in order to support growth and keep the outlook for future inflation consistent with the target. However, the reduction in discount rate is not helping – there is little credit left for the private sector to borrow, as the government remains the single largest borrower.
After remaining on a declining trajectory for over a year, non-food and non-energy inflation, known as core inflation, also remained stable in October.
Fuel and food-adjusted inflation rate remained stable at 3.4% year-on-year in October, according to the PBS inflation bulletin. Independent experts give more importance to food and fuel-adjusted inflation, which is not susceptible to seasonal price shocks.
The four-month average CPI-based inflation rate in July-October period also remained at 1.7%, suggesting that an overall inflation rate for the current fiscal year 2015-15 will remain far below the official target of 6%.
According to the PBS, prices of food and non-alcoholic beverage group dropped over 1% in October over a year ago. Perishable food items decreased 3.4% on a year-on-year basis in October but there was a small increase in prices of non-perishable food items group.
The pulses rates increased in the range of 36% to almost 56% due to the shortage of commodities.
In the energy group, price of kerosene oil was almost one-fourth less than that of previous October while petrol rates were also almost 22% lower as compared to last year. However, gas prices were almost 10% up than the previous October after the government implemented an increase under an agreement with the IMF.
There was also upward trend witnessed in the prices of garments, tailoring and education. The cost of education increased 8.8%, according to the PBS.
Another inflation indicator, the Wholesale Price Index (WPI) remains negative. For the last one year, the WPI is contracting, giving voice to concerns that the country was heading towards deflation. The WPI-based rate of inflation contracted 2.7% in October over previous year’s same month.
Read : Inflation dips to 12-year low of 1.3% last month
