After six months of staying under one percent during the current fiscal year, Consume Price Index (CPI) for January rose to 1.67 percent on a month-on-month basis. Though the year-on-year tally remained in single digits, it crossed the eight percent mark in January, a four-month high after 8.8 percent seen in September FY13.
What’s behind the whopping month-on-month increase? It was the non-perishable food group leading the rise. In particular, prices of wheat-related goods – wheat flour, wheat, wheat products – saw quite a spike, as anticipated thanks to the increase in wheat support prices by 10.5 percent to Rs1050 per 40 kilogram, a few months back. And it may cascade to other components in coming months.
Perishable food products also recorded a month-on-month increase, but that for non-perishable items was particularly marked.
Besides the food category, other key heads of CPI also depicted a month-on-month increase. Higher gas tariff – an increase of 6.13 percent on a month-on-month basis – propped up the housing, water, electricity, gas sub-category, while an increase in motor fuel, Compressed Natural Gas (CNG) to be precise, dragged up the transportation sub-index for the month.
The month-on-month increase in clothing prices that had been seen for the past few months slightly receded, plausibly because of the winter season drawing to a close.
Besides these basic heads, what’s worth noting is the increase in core and trimmed-core inflation seen this month, particularly on a month-on-month basis. In its latest annual report, the State Bank of Pakistan (SBP) has highlighted concerns regarding the relatively resilient core inflation, which is a reflection of self-fulfilling inflationary expectations in the economy.
Further, primarily led by an increase in wheat prices, the Sensitive Price Index (SPI) also recorded the largest month-on-month increase for this fiscal year in the month under review. However, for the last few weeks of January, - which will influence the upcoming CPI numbers – week-on-week SPI figures have been at the lower end, indicating the coming month’s month-on-month CPI tally will not have a significant boost from the food side.
Overall, with pressures emanating from core inflation, and increased government borrowing, the SBP will likely be wary of persistent pressure on CPI. Besides, increasing rupee depreciation against the dollar, and fiscal slippages ahead of the elections will also play their parts in preventing another surprising drop in CPI numbers. Therefore, it is not unreasonable to expect the SBP to keep away from a further accommodative stance.
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