EDITORIAL: Consumer Price Index (CPI) for June dropped by 8.6 percentage points compared to the month before – from 38 percent in May to 29.4 percent in June - with those privy to routine data manipulation by administrations in general and the finance minister in particular crying foul while his supporters are claiming that he delivered where it mattered most – to the common man.
The question is which side of the spectrum, from those enamoured of his policies and those that are not which include a rising number of PML-N long-term loyalists, is presenting an accurate picture?
Three disturbing observations are in order. First and foremost, the decline is sourced almost entire to food and non-alcoholic beverages with a weightage of 40.87 percent with indices of non-perishable items (weightage 35.08 percent) declining from 278.9 in May to 274.16 in June and perishable items (weightage 5.79 percent) from 227.6 to 219.49.
Within the non-perishable items the decline has been in three of the commodities that were heavily subsidised by the government: (i) wheat flour index plummeted from 354.87 in May to 325.87 in June, cooking oil from 373.99 in May to 360.75 in June and masoor from 193.9 in May to 190.59 in June and moong from 175.04 in May to 168.24 in June.
Two other items that were subsidised did not register a decline notably rice rose from 303.57 in May to 316.38 in June and sugar rose from 194 in May to 199.12 in June. It is critical to note here that subsidies doubled from what was budgeted in the outgoing year – from 664 billion rupees to 1.103 trillion rupees in the revised estimates with obvious negative repercussions on the budget deficit and consequently on inflation.
Vegetables and fresh fruits indices declined in June compared to the month before, an outcome of supply.
Secondly, housing, water, electricity and gas with a weightage of 27 percent shows an index decline from 173.07 in May to 172.95 in June though none of the component items noted shows a decline. In addition, house rent has a weightage of 19.25 percent, which has shown little upward movement during the past year which may be more reflective of understating of rental income by landlords rather than of the actual rent raise.
Transport registered a minor rise attributed to motor fuel; however, with the massive raise in the budgeted reliance on petroleum levy, 869 billion rupees, this is unlikely next month.
Thirdly, CPI (national) July-May 2022-23, as per the Pakistan Bureau of Statistics, was 29.16 percent while the figure for July-June is 29.18 percent so the annual average did not significantly improve. And this is backed by CPI rural July-May of 26.8 percent and July-June of 26.85 while rural was 32.65 and 32.63, respectively.
The finance minister stated on a private channel that core inflation, non-food and non-energy, should be the preferred indicator rather than the CPI.
While this may be true when considering fixation of the policy rate by the monetary policy committee of the State Bank of Pakistan but when considering the impact of inflation on household budgets this assertion by the minister may baffle economists, given that two major critical imported items majorly contribute to a householder’s monthly kitchen budget – petroleum and products (transport of goods and services and electricity) as well as cooking oil – coupled with the minister’s persistent inane support for controlling the rupee-dollar parity (cited repeatedly by the IMF as one of the main impediments to a staff level agreement) to prefer core inflation may reflect better on the government’s performance but wins it no kudos from the voters.
Sensitive Price Index July-May registered 32.8 percent while the July-June figure is cited as 33 percent. This reveals the failure of the relevant officials to rationalise and synchronise data, thereby raising serious concerns over data credibility. One can only hope that any future attempt to understate a figure for political reasons must at least be done intelligently enough not to raise doubts about the data.
Copyright Business Recorder, 2023
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