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Inflation is on a record-breaking streak. The headline clocked at 24.9 percent in Jul-22 – highest since Oct 2008. The CPI is likely to peak in August at 26-27 percent and that would be the highest since 1970s. Already in terms of PKR depreciation, July is the worst month since 1970s. Soon inflation will be too. Higher international commodity prices, sharp PKR depreciation and finally the passing on of energy prices are resulting in the painful inflationary era.

Interestingly, the house rent index – having weight of 19 percent in CPI, is up by mere 5.6 percent. This seems to be in sharp contrast to ground realities. One-fifth of the CPI is up by 5.6 percent, and this means the remaining four-fifth inflation is north of 30 percent in July.

The problem is not confined to food and energy. The core inflation is growing at a fast pace. It has increased to 12 percent. The trimmed core for rural is already above 20 percent while the urban is approaching. Not a good sight. Is wage-price spiral in play? SBP must elaborate on this in its next analyst briefing.

Inflation is hurting more in rural areas – CPI at 26.9 percent. Urban is not partying by any stretch –CPI is at 23.6 percent. Rural food inflation is almost at 30 percent. SPI at 28.5 percent is about to cross 30 percent – in fact latest weekly numbers are even higher than 30 percent. The WPI is approaching 40 percent – at 38.5 percent. Inflation is nearly murderous. And the worst is yet to come.

Highest inflation is recorded in transportation sub-sector where the yearly increase is at 65 percent and the monthly increase is 5.7 percent. Within the segment, motor vehicles inflation stood at 24 percent while the increase in motor fuel is at whopping 94 percent – the single biggest item increase. Its direct weight in the CPI is 7.3 percent; however, its indirect impact is widespread.

The food inflation increased at 29 percent and within it the perishable food items inflation stood at 33 percent. The quickest impact of increase in fuel prices is on perishable food items and the recent increase in fuel prices are already reflecting – in the last one month, the increase of vegetables inflation is at 25 percent for urban. The increase is only 15 percent for rural. The differential of 10 percent is purely due to transportation cost. Similar is the story of many other perishable items.

Fresh milk prices are up3.8 percent in a month and 25 percent in a year in urban centers. Milk and milk products have a combined weight of 8 percent in the CPI and their contribution to the headline is significant.

After fuel, the highest yearly increase is in electricity charges – up by a massive 87 percent on yearly basis and 39 percent in just a month. Fuel and electricity prices are adding to inflation in almost every item. Clothing and footwear inflation is at 14.6 percent. Recreation and culture at 15.4 percent. Health and education at 11.2 percent and 9.8 percent respectively. Restaurant and hotels at 25 percent. Nothing is cheap. Communication is up by mere 1.1 percent, so folks should expect phone and internet charges to move up soon.

FY23 is going to be a tough year. Full year inflation projections are hovering between 18-21 percent. SBP is keeping the policy rate at 15 percent. Let’s see how the SBP reacts to surging inflation in the upcoming review.

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Hussain Naqvi Aug 02, 2022 02:00pm
AslamoAlikum: BR Research excellent work. Very well written and brilliantly illustrated. Thank you.
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Abdullah Aug 02, 2022 05:43pm
Perfectly illustrates why SBP is very much behind the curve in fighting inflation. I would go as far as to say that the recent depreciation of the rupee is a result of SBP's inactiveness in raising interest rates sharply. Clearly seems like their primary agenda is not fighting inflation but rather accommodating government borrowing. SBP needs to get its act straight otherwise the savings of the average Pakistani will continue losing value.
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