It is half time into PTI’s slated five-year tenure at the centre, and it appears that the phantom of food (items) price inflation is finally breaking. Since beginning of December, wheat and sugar retail prices across the country have fallen by single and double digits, against peak levels touched in October. The effect is now also spilling over into pulses and lentils.
Is the bearish turn in grain prices mainly sentiment driven? It appears that the technicals of daal and roti go a little deeper than that. Historically, prices of Pakistan’s four major pulses and lentils – as tracked by CPI/SPI – have moved in tandem with the dollar. Since hindsight is 20-20, and December the month of retrospection, it appears of little surprise that compared to last year, pulses prices increased by one-third in CY20, led by extreme volatility witnessed in the currency value.
Why? Principally, because no commodity market can ever be insulated from price movements in the international market; but more importantly, because Pakistan’s imports more than three-fourths of its demand for major pulses – barring gram, popularly known as chana.
But CY20 has appeared to be a particularly special year as domestic retail prices climbed at a time when prices were crashing internationally – right at the cusp of pandemic led worldwide lockdown circa March and April. Although local demand was forecast to slump due to added strain on disposable incomes, the currency also ran amok around the same time (average Pak Rupee per dollar climbed from Rs 151 in Feb-20 to Rs 162 in Apr-20). Fears of disruption in global supply chains further exacerbated hoarding of existing stocks with domestic traders.
Since then, domestic trading has found calm. In the half year since June-20, retail prices have declined by almost ten percent, as imports have picked up steam. But what lies in the year ahead?
First, because prices of pulses are import driven, the leading indicator will remain the currency value. Furthermore, it remains to be seen whether the upcoming year will be any better for commodity price volatility, considering the pandemic led demand compression refuses to die down globally, as new viral strains are discovered every other week.
But importantly, Pakistan’s pulses traders have capitalized on the currency’s improved strength by increasing the import quantum in recent months. In fact, on annualized basis, Pakistan’s pulses and lentils imports have increased by 38 percent in 5MFY21 (Jul – Nov), compared to average annual imports of 0.8 million tons. At a time when domestic demand was set to suffer, a double-digit increase in import is no small news.
What does this mean for the upcoming year? Mainly that the traders are piling on inventory, betting on a reversal in domestic retail prices caused by an eventual weakening of currency. Come peak consumption period (Ramzan) of in April 2021, traders may be in for windfall profits; but if the currency remains stable, daal and roti may succeed in regain the mantle of poor’s staple.