Just when analysts thought the CPI numbers have levelled off and a further decline may only be small, the coming month comes up with inflation numbers lower than the market consensus.
Take the case of the previous month. Most analysts had expected the year-on-year inflation for November 2012 to clock in between 7.6 to 7.8 percent. However, the number this month tallied to an astonishingly low 6.9 percent - the lowest since the CPI data had been rebased to 2008-09.
On a month-on-month basis as well, the CPI stood at a negative 0.4 percent, the last time a negative month-on-month figure was reported, was in July.
It was mainly food inflation - making a whopping 35 percent of the CPI basket - that led to the month-on-month and year-on-year decline. In fact, at 4.71 percent, the year-on-year increase in food inflation was the lowest this fiscal year, with perishable food commodities showing a decrease of 10.8 percent on a year-on-year basis after 14 months.
Fresh fruits, tomatoes, onions, potatoes, pulses were responsible partly for the month-on-month and year-on-year decrease in prices of perishable goods. Chicken prices, on the other hand, depicted a year-on-year decrease, while cooking oil prices showed a month-on-month decrease.
The transport sub index - contributing 7.2 percent to the CPI basket - was another area that pulled down the CPI numbers. On a month-on-month basis, transport prices decreased by 5.5 percent, while the year-on-year tally was also the lowest for FY13. In most likelihood, the decrease in CNG prices last month could be attributed to this decrease.
The month-on-month increase in the Housing, Water, Electricity, Gas and Fuel sub index (29.4 percent in the CPI basket) was also relatively tepid, helping the overall month-on-month decrease.
Whats interesting about the inflation numbers this month is that year-on-year core non-food-non-energy inflation came down to single digit for the first time after July 2011, while the month-on-month figure also dipped down to a level last seen in September 2010.
SPI numbers for the last two weeks of November have displayed a week-on-week decrease. But the recently announced 14 percent increase in wheat support price change future inflation expectations to some extent. Dr Ashfaque Hasan, Dean at NUST Business School, Islamabad, said in an article for the university in 2009, "A 10 percent increase in (support price of wheat) would increase overall inflation by three percent."
However, Farrah Marwat of JS Securities mentioned in a research report on CPI, "Our calculations suggest that on an annualised basis, 14 percent increase in wheat price would contribute 60bps to headline inflation."
Overall, the lower numbers for CPI in general and NFNE on one hand, and expectations of an increase in CPI emanating from the wheat support price increase make one wonder what could be the outcome of the upcoming monetary policy announcement.
Given that the effect of the wheat support price may be felt after a lag, and also that the current market prices of wheat are close to the support price, the stage seems set for a further cut in the discount rate in the next monetary policy announcement.
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Major CPI groups - Nov 2012
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Y/Y chg (%) M/M chg (%)
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CPI general 6.93 -0.39
Food & non-alcoholic beverages 4.71 -0.37
Non-perishable 7.76 0.83
Perishable -7.18 -10.8
Housing, water, elec, 4.15 0.04
gas & other fuels
Clothing & footwear 14.51 1.06
Transport 9.44 -5.48
NFNE 9.70 0.20
Core Trimmed 8.80 0.20
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Source: PBS
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