June CPI inflation likely to rise to near 4 percent: analysts

KARACHI: Pakistan’s consumer price index (CPI) inflation may increase to near four percent in June thanks to uptick in food and energy prices, analysts said on Friday.
May CPI inflation number was recorded at 3.2 percent. Analysts said the inflationary pressures are growing due to rise in prices of foods following the new taxes and of petroleum products.
“Fiscal measures and Ramazan-related sharp rise in prices of chicken, fresh fruits, pulse gram, potatoes, tomatoes, sugar and tea may push monthly consumer price index inflation in June up to 3.87 percent,” said Asif Zafar, an analyst at Optimus Capital Management.
Under FY16 budget, sales tax exemption has been withdrawn from poultry feed and cattle feed, including their all ingredients except soyabean meal and cotton seed oil-cakes. While there is rebound in international oil prices, the government has decided to impose duties on the import of petroleum products, resulting in around 4.5 percent hike in petroleum prices in the beginning of this month.
However, analysts forecast year on year consumer price index inflation by June-end at 4.59 percent, well below the government’s projection at 8 percent. The government has projected CPI inflation for FY16 at 6 percent.
“Fall in global commodity prices has brightened the outlook for maintaining decelerating inflation trend ahead,” ex-finance minister Dr Salman Shah said. “The FY15 CPI inflation seems to be in line with the State Bank’s projection of 4 to 5 percent.”
Dr Shah didn’t foresee the impact of Ramazan-related price hike on inflation. “I do not think the Ramazan-backed inflationary pressures will have any negative implications for the entire FY15 inflation numbers,” he added.
“Though oil prices remain depressed in international market, (yet) any disruption in agricultural production at the domestic level could spur demand due to shortage of the commodities.”He further said the real issue is energy problem, which could further flare up the petroleum prices in future.
Moreover, there has been a revival in money supply (M2) growth. It expanded 10 percent between July 1, 2014 and June 12, 2015 against 9.14 percent during the same period last fiscal.
Analysts said the government’s high budgetary borrowing from the banking system fueled the money supply growth. “Interest rates have most likely bottomed out, which is also reflected in rebound in treasury bills’ yields,” an analyst said.