Pakistan’s inflation touches fresh 11-year low as oil, food prices fall

ISLAMABAD: Pakistan’s annual inflation slowed for a fifth month in March and touched a fresh over 11-year low, government data on Wednesday showed, as petroleum and commodities slide keeps price pressures low.
The Consumer Price Index (CPI) that measures what Pakistanis pay for everything has increased by 2.5 percent in March 2015 against 3.2 percent in previous month and 8.53 percent in March 2014, the Pakistan Bureau of Statistics (PBS) revealed.
The consumer prices fell in March at the steepest rate in almost eleven-and-a-half-year, which is a sign that inflation is heading lower because of sliding petroleum prices. Food inflation also turned negative during the month under review.
“Inflation in first nine months of the current fiscal year (2014/15) stood at 5.12 percent as compared to 8.64 percent in the same period last year as significant decline in oil prices kept overall CPI in check,” said analyst Umair Naseer of Topline Securities. “Core inflation in March 2015 clocked in at 5.9 percent as compared to 6.2 percent in February 2015, indicating low inflationary pressures on the economy.”
Plunging global oil markets, fallen by more than two-fifth since mid-June 2014, helped Pakistan post slower-than-expected monthly price inflation since December as the government subsequently slashed domestic petroleum prices in line with the global trend.
It also gave room to the central bank to make cut in interest rates to help the economy grow. Since November 2014, the central bank has thrice cut key discount rate.
Analysts are now divided over whether the central bank will cut again or hold interest rates steady for the rest of the year.
“SBP has slashed policy discount by 200bps since November 2014, we remain affirm on our call of further 50bps discount rate cut to 7.5 percent in 2015 on the back of benign inflation outlook (12-months forward CPI below 5 percent), stronger forex reserves and stable local currency,” Taurus Securities Limited said in a research comment.
It attributed disinflation to the lower food prices, especially perishable food items, and fuel prices, “which have tamed overall commodity prices in the country.”
“Low crude oil prices, which tamed inflation in last few months, would keep commodity prices in check in coming months…. However, quarterly revision in House Rent Index and expected rise in gas/fuel prices would result in higher inflation reading, 1.5-2.0 percent (month-on-month, in April’15.”
Food and beverages carry more than one-third weightage in CPI basket and its inflation in Pakistan averaged 7.26 percent from 2011 until 2015, reaching an all time high of 12.99 percent in November 2013 and a record low of -0.48 percent in March of 2015.
Utilities charges (housing, water, electricity, gas and fuel) up by 5.72 percent.
Health and education charges became dearer by 4.3 percent and 14.2 percent, respectively.
Prices of alcoholic beverages and tobacco stood at 20.2 percent, clothing and footwear 7.37 percent and furnishings and household equipment maintenance 5.55 percent.
Charges related to recreation and culture went up 3.3 percent and restaurants and hotels 4.97 percent in March 2015 over the same month in 2014.
However, transportation charges were down by negative 10.74 percent.
Historically, from 2003 to October 2014, an average CPI inflation remained in the double-digit, hitting a historic high of 25.33 percent in August 2008 and a record low of 1.41 percent in July 2003.
The declining trend can be judged from the FBS figures that shows inflation in April 2014 at 9.18 percent, May 8.34pc, June 8.22 pc, July 7.88 pc, August 6.99 pc, September 7.68 pc, October 5.82 pc, November 3.96 pc, December 2014 it was at 4.3 percent. In January 2015, CPI was recorded at 3.88 percent, February 3.24pc, and in March it has been clocked in at 2.49 pc.
Senior Economists who have been once the policy planers of the government believe that in Pakistan inflation should be between five to six percent.
Excluding food and energy costs, so-called core inflation stood at 5.9 percent compared to 6.2 percent in previous month and 7.6 percent in March 2014.
Interestingly, the wholesale price index (WPI), on a year-on-year basis, went down by 3.7 percent in March 2015 as compared to 3.4 percent decrease a month ago and increase of 7.7 percent in March 2014.
This also indicates that in the months to come the Consumer Price Index inflation will further go down.
The sensitive price indicator, which gauges weekly-based inflation in kitchen items, gone down by 1.9 pc percent in March 2015 year-on-year, compared to 0.2pc increase a month ago and 8.98pc in March 2014.