July inflation feasted on food

The CPI numbers released by the FBS for July-2011 showed a considerable increase. Clocking in at a year-on-year increase of 13.77 percent in July 2011, the inflationary increase was a six-month high on a comparison of the year-on-year increase in monthly inflation. On a month-on-moth increase, the July inflation was a 10-month high at 1.80 percent. Food inflation led the last months inflation, with prices of food commodities rising in anticipation of Ramazan which began Tuesday. On a month-on-month change, food inflation reached a 10-month high too, rising 3.16 percent in July-11 relative to June-11. The rise in food inflation was led primarily by perishable commodities. The SPI, which gives an indication of food price inflation for the coming month, shows a slight tapering off. The overall increase in SPI over the last two weeks of July-11 is less than that observed during the last two weeks of June-11. Therefore, food inflation is expected to ease a little in August-11. The house-rent index, on the other hand, maintained an upward trend, registering a 13-month year-on-year increase in July-11. The highest year-on-year increase before this was 9.69 percent in June-10. It appears that the house rent index is beginning a 24-month cycle, and is on the rise. Consequently, one caveats that the house rent index could go up further going forward. The house-rent index could also be responsible for stoking the non-food-non-energy inflation, which has been showing a year-on-year increase every month since April-11. While fuel and lightning also depicted an increase both year-on-year and month-on-month, nothing concrete about future increases can be ascertained, despite repeated calls of increasing electricity tariffs, because the decision is often stalled in the face of political interest. Transport, on the other hand, showed a month-on-month decline, led by the fall in petrol and diesel prices. Going forward, because of the increase in petrol prices at the beginning of this week, the rise will be reflected in August-11 inflation numbers. In its monetary policy released last week, the SBP has projected that inflation will remain within the announced target of 12 percent for FY12. The governments commitment to contain budgetary borrowing from the central bank also lends support to a relatively muted inflation for the fiscal year going forward.