Inflation on a steep road

Fuelled by dearer food, consumer prices in Pakistan rose by 15.71 percent last month - its biggest year-on-year basis rise since April 2009. Month-on-month comparison is even more frightening; latest data released by FBS shows that CPI jumped 2.65 percent (MoM) in September.
The higher-than-expected inflation comes mainly on account of whopping increases in the price of both perishable and non-perishable food items.
The food and beverages basket, that became costlier by 21.24 percent year-on-year, saw prices of perishable items soar by 53.87 percent year-on-year - its highest in recent memory - while that of non-perishable edibles rose by 16.04 percent.
But this food-led price hike is likely to subside as the post-flood recovery takes place and as supply disruptions are resolved. Slowing SPI inflation, that mostly tracks food prices on a weekly basis, supports this view.
After surging by 4.8 percent to 274.36 points during the four weeks ending September 16, the combined SPI index eased to 272.46 points in the first week of October - showing a decline of 0.7 percent since mid-September.
The decline in SPI index implies that food inflation would likely be near zero, if not negative, in October - leading to tamer month-on-month increase in the overall consumer price index. This, coupled with sliding core inflation, i.e. CPI stripped off food and fuel prices, decreased to 9.4 percent last month, is a bit of relaxing news.
But that doesn mean that monetary managers will get a breathing space. Here is why.
Despite downward moving core inflation and easing food prices, year-on-year inflation will remain uppish in October owing to the low-base affect, something which will likely continue till December. In fact, even if food inflation ends up in the negative zone this month, October inflation will likely remain in the vicinity of 14.5~15 percent.
From January onwards, a higher base might provide a cushion. But by that time the impact of the energy tariff hike could cause trouble, whereas core inflation might also pick up slightly, as post-flood reconstruction activities resume after winters.
And since, its difficult to quantify the exact impact at the moment, the inflationary hawks might get another excuse to rule the day once again.