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Inflation down with errors

It’s just not the high base effect. The volatility in the food items, especially perishable, and some apparent change in recording practices are doing the trick. Headline inflation registered an increase of 12.91 percent for February, well over a percentage point below the market expectations.

The lack of market mechanism is visible in high volatility in prices of daily use food items like tomatoes and onions is making analysts work troublesome – perishable food index declined by 16.4 percent in a month’s time making the food index to down by 2.1 percent, yoy. The SPI data for last three weeks to be recorded in March CPI suggest that food index would increase 1.2-1-4, yoy in the coming month.


Interestingly, FBS data compilation has some discrepancies as well. The monthly average price for 53 essentials item summary for February over January is showing different results from index break up details.

Moreover, CPI usually records petroleum prices increase for a month in the preceding month’s inflation. For instance, 5 percent increase in petrol and diesel prices for March, on FBS past practice, should have been registered in February. But transportation and communication index suggests otherwise. While the prices in CPI summary are telling a third story.

This is not the first time that CPI data is showing funny errors, few months ago, this column highlighted the errors in recording PTCL call charges increase and also questioned the index wieghtage. Anyhow, one has to live with the available data.

High base effect helped the inflation to tame down which averaged at 13.1 percent in past two months versus 14.5 percent in the first half of this fiscal year. This trend is likely to continue in March and April.


Non-food non-energy remained in the single digit for the eighth consecutive month. While the trimmed core inflation has slightly moved down in February. Heavy weight, the house rent index, has stayed around 6.5 percent for yet another month, beating the analysts’ forecast.

With the eight month average at 14.3 percent and likely to slip further in the coming two months, there seems to be little chance for the SBP to take a hawkish stance in the upcoming policy rate review. Higher focus towards six months paper in latest T-Bills auction also narrates that the market is not expecting much hike in interest rates in the coming few months.

However, delaying fiscal reforms and not passing oil and electricity prices and northward movement in international oil prices will keep the SBP from being dovish anytime soon as the inflation dragon is by no means dead.


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