CPI roundup

The headline inflation clocked at 12.7 percent in March 2022, and 9M average is at 10.8 percent –hovering around the upper limit of SBP’s estimate of 11 percent. Although the monthly rise in CPI (at 0.8%) is mainly due to another hike in food prices (up by 2.25%), the core inflation is up at multi-year high – at 9.5 percent, it is the highest level since Feb 2013.

Food inflation increase is mainly due to non-perishable items – up by 2.7 percent on monthly basis. In fact, perishable food items prices are down by 0.3 percent as compared to the last month. The yearly increase of food prices is 15.3 percent in March 2022 and within it the perishable food items are up by 30 percent. Last month increase is mainly in chicken – up by 34 percent in a month. One of the reasons for hike is demand substitution from beef due to lumpy skin disease in Karachi and surroundings. However, the chicken priceshave increased across the country.

On yearly basis, the highest food item price increase is tomato – up by 149 percent. This is followed by mustard oil vegetable ghee and cooking oil – all these three items increase is around or above 50 percent in a year. That is due to rising global palm and other cooking oil prices. Earlier, the increase was due to Covid supply chain disruption and lately the increase is due to war in Ukraine.

The food prices increase may continue in April due to seasonal impact – fresh fruit prices are up by 15 percent in March as compared to the previous month in the run up to Ramzan and prices may continue to move up.

The food price increase in March is partially nullified in the monthly increase due to decline in the house rent and utility index. It is down by 2.2 percent on monthly basis. The fuel and energy prices have been frozen. Electricity charges are down by 13.4 percent on monthly basis while the motor fuel is down by 2 percent.

In remainder basket, the increase is visible across the board. This is due to second round inflation. The currency is depreciating and there is no respite in the international commodity prices either. The government which in the past used to put efforts to curb inflation was sidelined and the price increases have gone unchecked.

The education sub index is up by massive 5.6 percent in a month and the yearly increase is at 9 percent. The health inflation on yearly basis is in double digits. And the restaurants increase is approaching 15 percent while the miscellaneous increase is at 1.8 percent MoM and 11.9 percent YoY.

The SPI is easing a bit and is up by 13 percent in March and 9MFY22 increase stood at 17.2 percent. There is no respite to WPI which is up by 23.8 percent in March and 22.3 percent in 9MFY22. The overall inflation pressure shall remain high in coming months due to Ramzan factor, currency depreciation and rising commodity prices. The policy rate at 9.75 percent is irrelevant asmarket rates are already above 12 percent.