Inflation to hit 5.69pc in Oct on high energy prices

KARACHI: Consumer inflation is likely to touch 5.69 percent year-on-year in October and is expected to rise even more in months ahead after the government's recent decision to increase gas and electricity prices, analysts said on Tuesday.

Annual consumer inflation clocked in at 5.1 percent last month, lower than August at 5.8 percent, but higher compared to 3.86 percent recorded in September last year.

Import-dependent Pakistan has been hit by comparatively high inflation since the PTI government allowed the rupee to devalue almost 10 percent in last two months.

The devaluation, however, also marked a possibility of talks with International Monetary Fund to avert balance of payment crisis emerged after the country faced ballooning current account deficit. The current account deficit has swelled to about $18 billion.

Earlier this month, the government increased gas prices by up to 140 percent. Later, it also raised electricity prices to help cut circular debt in the energy sector.

Analysts said consumer inflation was being pushed on the back of rising house rents, higher fuel and energy costs, as well as the overall deteriorating global and local macroeconomic environment.

Brokerage Taurus Securities in a report said the increase to 5.69 percent in October would bring the current fiscal’s four-month average inflation to 5.62 percent, whereas the average inflation was 3.47 percent in the fourth quarter of fiscal year 2018.

House rents, that weigh 29.4 percent in the inflation basket, went up 6.45 percent year-on-year in the quarter, which the brokerage said was expected to have the “most significant impact on the October figures and was the primary driver of headline inflation”.

It also attributed the hike to the quarterly rise in the price of motor fuel, up 22.46 percent; education, up 13.11 percent; transport services 16.23 percent, gas 22 percent, and clothing 9.57 percent.

“Food inflation, which occupies more than one-third

of the CPI basket, would stand at 1.3 percent in October

2018.”

The central bank in its latest review on the country’s economy forecast consumer price inflation to reach six to seven percent in the current fiscal year of 2018/19 as opposed to its earlier estimate of 5.5 to 6.5 percent.

Analyst Mirat Hyder of Taurus Securities said the monthly increase in the consumer price index was driven by “a 31.37 percent increase in the price of chicken, due to low base effect”.

“Also, Oil and Gas Regulatory Authority’s price hike, which became effective this month, has resulted in a 22 percent hike in gas prices, while the quarter on quarter increment has house rent up 0.76 percent month on month,” Hyder said. Inflationary pressure was also expected from education and consumer goods too.