Prices are more meaningful in relative terms. And that is why wheat production, which increased by 4.4 percent during FY14, along with a corresponding reduction in prices, needs a bit of more insight.
Going by SBP’s latest report on the outlook of the economy, wheat is the second largest contributor to inflation. This is during the time when ‘wheat and perishable food inflation declined significantly’. The commodity had also shown notably lower inflation during the third quarter of FY14.
But, relatively speaking, as said above, the roti ingredient’s inflation movement has been such that it even puts the more aggrieved electricity tariff to shame. Year-on-year inflation in wheat and its products remained highest throughout the year among the 10 heaviest items in the CPI basket, including house-rent and electricity.
The report also acknowledges that wheat prices were on a rise since June 2013 on account of lower supply in the domestic market and below target production during the last season. Prices decelerated later during the third quarter as the commodity was released in higher quantities by the government and the private sector.
But, the real pick may lie in a tiny footnote of the report, which says that “anecdotal evidence suggests that the private sector had built its stock by local purchases at the time of harvest, and imports during Aug-Dec 2013. After December, it increased wheat supply to the market, in an anticipation of forthcoming bumper crop.”
Anis Shahid of the Chakki Atta Association agrees, saying that there is no shortage of wheat in Pakistan; and, therefore, imports are unnecessary. Further, imported wheat costs less and is poorer in quality. So, when prices are low, wheat is imported from abroad while the higher quality local produce is stocked. As supply of the latter comes down, prices go higher, benefiting local wheat hoarders. This was also witnessed during the month of Ramazan, reports Shahid, when the price of wheat suddenly rose from Rs32 to Rs34 per kg, without any prior notice.
As the weather takes a cooler turn, wheat prices are likely to take an upturn and might hit somewhere around Rs38. Given the primary nature of the commodity, prices of wheat can hit hard on the more vulnerable groups. With no formal documentation of wheat production and stocking by the private sector, wheat pricing continues to pose inflationary risks.
Between grandiose highways and rebellion long marches, the poor roti might be losing space.
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Top 10 contributors to inflation
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% Contribution* YoY Inflation
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Q1 Q2 Q3
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1 House rent 17.4 8.2 7.9 8.0
2 Wheat & its products 10.9 24.5 26.0 16.8
3 Electricity 9.6 0.0 15.8 15.8
4 Milk fresh 6.7 7.4 6.7 6.5
5 Fresh vegetable 3.4 17.6 16.5 18.1
6 Education 3.4 8.0 8.6 7.9
7 Cigarette 3.0 14.7 15.1 16.2
8 Chicken 2.7 12.6 10.5 16.4
9 Cotton cloth 2.6 15.0 13.9 13.3
10 Potatoes 2.5 13.0 70.2 51.2
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Overall inflation 8.1 9.7 8.1
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* = Based on contribution to Q3 inflation
Source: Pakistan Bureau of Statistics
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