Expect the PTI to boast of inflation figures, first year in office. The CPI clocked in at 7.3 percent year-on-year for FY19. Inflation in PML-N’s first year was 8.62 percent, while that in PPP’s was 19.6 percent. The headline inflation for June clocked in at 8.89 percent year-on-year, much lower than the market estimate of 9.5 percent.
However, the PTI, in all likelihood will fail to replicate what followed from year 2 onwards in the PML-N’s regime, where the headline inflation in the last four years averaged 3.88 percent. A lot has changed of late, not least the expected inflationary impact of the budget measures, which is likely to take its toll as the year moves on.
The days of single digit inflation may well be numbered for a few months to come, as energy price revision has been done. While, the impact on electricity prices may not be that significant, it will still run into double digits, given the prices were last revised just six months ago, and even after discounting for the fact that consumers using up to 300 units are insulated from the hike, the impact could well double to 37 basis points, to 75 basis points.
The real deal is the gas price revision. And a lot will depend on how the PBS decided to compute the impact. Should it go ahead with previous weights and methodology, the increase will be computed at 133 percent for the first four months of FY20 ending September. The impact on CPI will rise from current 1.33 percentage points to 2.1 percentage points – underlining an increase of 76 basis points – sufficient enough to single-handedly take CPI into double digits. From October onwards, the impact would slightly subside to 76 percent increase, lowering the impact to 1.19 percentage points.
The transport prices are also slated to go up, some on account of currency adjustment. The CNG prices have gone dearer by 15-20 percent and will be reflected in next month’s numbers too. The recent impositions of GST on textile products for domestic sales would also mean pricier clothing and apparel, which has a significant contribution in CPI – higher than that of gas and power combined.
The currency has depreciated quite sharply towards the end of June and the inflationary impact could be visible in the months to come. Demand compression may well have reached its limits, and the inflation is cost push. It remains to be seen whether the PBS decided to come up with a fresh basket of goods, and a better mythology come FY20 computation. Either way, the inflation dragon is all set to hit the town, and won’t be going away too soon.
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