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With central bank’s autonomy now enshrined into law, many fear that fiscal and monetary houses in Islamabad and Karachi may no longer see eye to eye. But if there is one policy area where both sides are in complete sync with each other; it is inflation or at least the interpretation of it.

Earlier this week, surrogates at Q-block declared that inflation was finally contracting, pointing to N-CPI numbers over the last three months. This pronouncement is line with the MPS from two weeks ago, which saw inflationary pressures calming down.

The growth momentum in month-on-month inflation has certainly slowed down beginning December 2021, but the headline figure is yet to turn negative convincingly. The pace has slowdown from 2.66 percent between Oct – Nov to 0.2 percent in Dec – Jan, but is almost entirely driven by decline in price of perishable food items.

Recall that perishable prices (e.g. onions, tomatoes, potatoes, ginger, fruits, vegetables etc) suffer from high degree of seasonality. Month-on-month change in perishable index of N-CPI had averaged at 10.72 percent between Oct – Nov. Between Dec-Jan, the same declined at -13.07 percent.

Is that not sufficient cause for celebration for an administration desperately looking for victory? Here is one reason for jubilation, rooted in evidence. During 2021, perishable prices did not chart new heights. In fact, as per N-CPI, peak perishable prices during Nov-21 remained below levels witnessed a year earlier (in Nov-20). The volatility in freshly harvested fruits and vegetables seems to be diminishing, a good sign for both producers and consumers.

But that hardly means that either consumer prices - or the food component of it – are witnessing an enduring decline. Unlike past, the food subindex of rural CPI is already on the rise in January 2021. For obvious reasons, rural prices are a leading indicator of food inflation at national level. A peak under the hood indicates that while perishable prices have continued to pull down rural-CPI, the more permanent non-perishable prices have continued their upward march. In the past, the impact from fall in vegetables and fruits prices during January has proven strong enough to cancel out rise in non-perishable prices. But this no longer seems to be the case.

But more importantly, the food sub-category within Wholesale Price Index (WPI) has charted fresh heights in the past 12 months, staying in positive territory since at least January 2021. Even more worryingly, the rise in food WPI has outpaced rise in both rural and urban food indices, which hadn’t happened in earlier rounds of price increase since 2018.

Readers will recall that food prices under PTI, has witnessed two significant rounds of increase – first during mid CY19, mostly attributable to currency depreciation. The second round followed the reopening of economy after pandemic in 2020, which saw rapid rise in retail prices due to supply-demand mismatch.

In each of those rounds, both the rise in wholesale (Food) index, and growth rate remained significantly below rural and urban food price indices. The latter two had also witnessed greater volatility compared to Food WPI. But beginning January 2021, rise in Food WPI has outpaced rural and urban food indices, with retail prices slower to respond. Even during past two months, Food WPI remained immune to the charms of seasonality.

A stubborn Food WPI could mean that the retail prices are yet to see a pass-through impact of higher prices in the wholesale chain, which may be reeling from the effects of both recent round of depreciation and fresh tariffs imposed under mini-budget. The effects of currency depreciation are already visible in wheat prices, which have risen to as much as Rs 2,600 per 40kg in the wholesale market. And with little to no respite in commodity prices internationally, the WPI impact may trickle down at retail level sooner rather than later.

Food prices have a weight of 41 percent in rural CPI, and 31 percent in urban CPI. Wholesale market prices show that neither may be in mood to calm down any time soon. Yet, the folks at both Constitutional Avenue and Chundrigar seem to be convinced otherwise. Before the public joins them in celebration, mind if they may share cause for their confidence first?

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