When the house rent hump humps

Tick by tick, rising consumer prices are making their presence felt again. FBS data show that CPI inflation jumped 1.62 percent in April - its biggest month-on-month increase since September 2010 - that has taken the year-to-date inflation to 14.08 percent.
One of the main culprits is food. The prices of heavier weighted non-perishable items stabilised a bit - rising 0.39 percent month-on-month against the average of 1.52 percent in the first three months of CY11. However, that of perishable items increased substantially. The perishable food sub-index ballooned by 8.34 percent month-on-month - its fastest in the last seven months.
Two other items that jacked up the CPI, were the apparel, textile & footwear and the fuel & lightening indices. The former hiked by 1.96 percent - its biggest month-on-month increase since May 2010 - as soaring cotton prices finally took their toll. The latter, of course, tracked the trends of global oil prices - one that is seen uppish in the months ahead.
Despite these rather sharp month-on-month changes, however, inflation seems to be tapering off in year-on-year comparisons. Thanks to the mathematical reality of a high-base affect, the full-year inflation can be expected to stay below the lower end of the central banks projected range of 14.5-15.5 percent.
In fact, CPI will have to rise by more than 2 percent in both the remaining months to take the full-year average inflation to 14.5 percent. That, even in the face of volatile food and rising fuel, appears to be an outside chance.
Looking ahead, one of the eyebrow raising factors, however, is the gradual rise in house rent index (HRI) that has nearly 24 percent weight in the CPI basket.
April saw the HRI inflation rise by 0.92 percent month-on-month, which was its biggest jump since September 2009. Plus, on year-on-year trends, HRI inflation seems to have bottomed out in February, following which it appears to be heading northwards in line with its (roughly) 24-month cyclical movement (see graph).
Aside from the HRI, another element that will be interesting to observe over the course of months is the governments fiscal policy. The budget is expected soon and the central bank managers would naturally be looking for a direction as regards the governments plans to bring down budgetary borrowing and to retire the debt that has almost doubled in recent years.
Awaiting the developments on the fiscal front, the SBP might maintain a wait-and-see policy in the upcoming policy review. However, knowing that the government cannot be completely relied upon to give a clear cut direction in the said context, the lagged affect of cotton price hike, firming fuel prices, further rises in HRI inflation, and volatile food are likely to force SBP to keep its anti-inflation bias in the current calendar year.