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BR Research

The best present ever?

Prime Minister Shahbaz Sharif celebrated his 71th birthday last month, sadly without any fanfare. Folks at Pakistan...
Published October 5, 2022

Prime Minister Shahbaz Sharif celebrated his 71st birthday last month, sadly without fanfare. Folks at the Pakistan Bureau of Statistics were apparently the only ones to send the Prime Minister a present, reporting the highest month-on-month decline in national CPI in at least four years (or highest ever under a new base). Cynics believe that the gift was excessive, even undeserved (For more, read: The PBS metaverse, published yesterday). Readers must of course dismiss such naysayers, and remember to submit a copy of CPI report along with their ‘lower’ utility bills!

If PBS stays its course, it wouldn’t be long before Pakistan will achieve positive real interest rates. In fact, by December inflation rate may as well enter single-digit territory, as food inflation undergoes its seasonal dip. The opposition under PTI fears many things come winter. One wonders if PDM’s decisive victory over CPI had made that list.

Meanwhile, on the food CPI front, things could not have looked worse. Had it not been for the sleight of hand-pulled under 'housing & utilities’ category, the monthly inflation number would have landed at least at 193.3 (an impact of 2.9 basis points). Of this, three-fourths of the increase would have stemmed from food CPI alone, with perishable prices increasing 16 percent, and non-perishable 4.06 percent, month-on-month. Even if the change in housing & utilities index had come out to zero, national CPI tally would have landed at 28.3 percent, another highest-ever. But that wouldn’t have made for a very nice birthday gift now, would it?

Of course, the uncharacteristic rise in perishable prices during September due to floods was beyond the control of any administration. Interestingly though, despite the reported damage from floods, the month-on-month rise in the perishable index was only the fourth-highest in as many years, and lower still than the seasonal peak witnessed in April every calendar year. In fact, perishable prices historically touch a second peak each November. Thus, even though prices may have slowed down in recent weeks, they may see another cusp over the next eight weeks, before finally taking a bow.

And that’s just perishables. Over the next couple of months, the food grains component of the index may become an even bigger thorn in the side of the low inflation-at-any-cost camp. On the one hand, both farmer groups and policy advisors are considering a shockingly high MSP to encourage wheat plantation. On the other hand, the government wants lower grain prices. Something’s gotta give!

Unfortunately, the numbers will simply not add up. Unless of course, the Shahbaz administration is prepared to bring the commodity financing loans to figure out of the shadows and promote it to the ranks of a full-blown circular debt – ready to stand shoulder to shoulder to gas and electricity circular debts in size – in less than a year. Come next September and general elections, that might make for an even better birthday present. One for the whole nation!

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