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Year-on-year CPI national headline inflation at 9.2 percent for October 2021 came as little surprise, as food and transport prices headlined the story. The Jul-Oct average CPI at 8.74 percent is identical to the same period previous year, and the hopes of keeping inflation under 8 percent for FY22 should be fast waning. Some government officials still drawing jubilation from “single-digit” inflation would do well to remember this is coming off a high base already.

A sharp 11 percent year-on-year fall in perishable food prices has brought down food inflation back to singe digits. But the month-on-month trend is still rising, with perishable food prices going up by 6 percent from September 2021. The real deal is the non-perishable food prices, which have continued to rise unbated, recording double digit increase month after month.

There has been some respite in wheat flour and sugar prices, as a combination of administrative price control, and reverting to DC notified prices in case of wheat flour has somewhat arrested the price increase. On year-on-year basis, flour price is still up in high teens. Milk has so far seen a steady increase without going out of control, but that could all change soon as dairy associations have warned of a massive hike in dairy prices, following the recent round of petroleum price increase.

Cooking oil prices continue to rally on the back of global palm oil spiral. If history is any guide, non-perishable food prices have largely been found irreversible, even when the global supply shock settles. Electricity tariffs have been jacked up and are likely to take effect from November 2021. The rising fuel price means the monthly FCA is likely to stay significantly high for the next few months. This should keep electricity tariffs up in the high teens. Mind you, the government has now adopted a revised and corrected formula for subsidy, and the previously insulated consumption categories also face significant increase in tariffs going forward. One is not entirely sure if the PBS will be able to reflect the same in its methodology, as it has often failed in the past.

As the negotiations with the IMF are expected to conclude soon, one must not rule out upward revision in natural gas tariffs. The rural heating fuels, especially LPG have seen exorbitant increase in the past few months, significantly higher than electricity, gas or petroleum price increase.

As crude oil prices continue to stay high, the petroleum pricing challenge is getting tougher. Despite reducing the taxes substantially, the year-on-year increase is still creating havoc on wholesale prices. The WPI inflation at 21 percent for October 2021 is the highest in over a decade. Transportable goods lead the way with 40 percent year-on-year rise, and it should only be a matter of time before these prices hit the retail segment. The CPI is surely not out of the woods.

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