According to a recent survey the general public is expecting low inflation in the coming months
Lower expected inflation for the next six months is the dominant view among the respondents of the January edition of the Consumer Confidence Survey, which is jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA) every two months.
The survey covers three broad themes: overall consumer confidence indices, inflationary expectations and other key highlights about households’ perception of important indicators.
It reveals Pakistanis believe prices of everyday items and services will increase at a slower-than-usual pace in months ahead. It is important to note that the expectations about inflation actually play a most significant role in determining the overall price level in an economy. Economists believe prices go up partly because people expect them to rise.
According to a recently released research paper on inflation expectations and economic perceptions written by researchers at Yale University and the SBP, inflation expectations are ‘systematically exaggerated’ in developing countries like Pakistan.
The paper concludes that the bias is entrenched for low-income, less educated, female and younger respondents.
“We also find that the recent fuel and energy price (revision) announcements play an important role in determining perceptions of inflation, which suggests that these commodities play an anchoring role for inflationary expectations,” it said.
The survey uses the Consumer Confidence Index (CCI) to measure households’ perceptions about the economy. Showing an increase of 10.4% over the last survey released in November, the CCI stood at 153.93 points in January – its highest level since its inception three years ago.
Similarly, both sub-indices of the CCI, which measure households’ current and future economic conditions, registered a significant rise in January over November.
Year-on-year inflation during the first half of the current fiscal year clocked up 6.1% compared to 8.9% recorded over the same period of preceding fiscal year.
The survey also revealed that 15.7% of more than 1,800 surveyed households were ‘positive’ about government policies in January as opposed to just 10.7% in November. Similarly, the percentage of households expressing interest in buying a car or a house in the next six months also increased in January compared to November.
