April inflation inflated by anomalies

The much-delayed inflation numbers released yesterday shook the markets like a bomb. "Oh! My God", screamed one floor trader in awe nearly jumping out of his seat while others pressed their sell buttons in fright.
The poor chap had to panic. After all, the governments statistics department said year-on-year CPI inflation stood at 13.26 percent in April - much higher than the consensus forecast of 12.64 percent.
But the analysts community isn to be blamed entirely for higher-than-expected numbers.
The credit goes to the obscure methodology of observing certain prices and also to Federal Bureau of Statistics which oversees discrepant calculations and unrealistic weights assigned in the basket of consumer price index. Together, these factors are responsible for successfully jiggling the CPI numbers.
The department is already known to register fuel prices change a month prior to the one in which actual price impact is observed. For example petrol and diesel prices increase for May has already been recorded by FBS in Aprils CPI numbers.
Similar is the case of tariff change by the fixed line operator, PTCL, which restructured its billing from Rs2 per 3 minutes to Re1 per minute with effect from March 1.
The price impact of this move was naturally seen in March, but because PTCL bills its customers on the basis of readings measured on the 10th of each month, it wasn recorded in March inflation. Therefore, FBS recorded it in Aprils inflation.
At the same time, interestingly, FBS has recorded a 48 percent increase in SPI, under the head of telecom charges, for the week ending May 6. However, in the CPI, whose telecom basket also includes cellular and broadband, the effect of PTCLs rate change is diluted to 37 percent month-on-month increase in April.
This alone contributed 0.71 percent of total month-on-month 1.73 percent increase in CPI during April. Barring that - the yearly inflation number would have been 12.47 percent, in line with the consensus forecast.
Thankfully, recording anomalies tend to neutralize over the passage of time, unlike absurd computations - another permanent goof up at the FBS. The issue in question is again, communication/telephone charges whose weight is illogically tilted towards PTCL.
Assigning more weight to landline was fine at the time of making the basket in 2000. However, today, when the lions share is held by cellular and broadband users, this makes no sense.
Then there are other computational discrepancies that not only make the life of an analyst harder but also give wrong signals to the markets.
For instance, how come 0.81 percent month-on-month increase was recorded in seven out of ten items of the transport and communication group, with no decline in rest of three items, as told by FBS officials, could result in 0.42 percent rise in the total group? That, at least, defies basic arithmetic principles.
Irregularities aside, high April inflation is not going to set a trend in the coming months. Here is why.
The main culprit for price hike in April is perishable food items, which became dearer by 15.9 percent in a months time to contribute 0.73 percent in monthly numbers.
Now exclude PTCL service charges and take a cursory look at the SPI numbers between Apr 15 and May 6, which indicate the price variation in basic items for Mays CPI, and you will see that SPI declined by 0.65 percent in the three week period.
With not much change expected in the fourth week, a fall in food prices might be observed in Mays CPI numbers.
Likewise, tamer global oil prices, which declined by an average 3.8 percent in the month to date over April, would lower domestic fuel prices. And though, the downward trend in non-food and non-energy inflation seen since the start of this year came to a halt in April, trimmed inflation remained unchanged at 12.7 percent.
Therefore, monetary managers are unlikely to tighten the noose due to an unexpected hike in prices during April. Perhaps, thats what restored confidence in the stock market; it managed to recover the lost ground by the sessions close on Wednesday.