Consumer price inflation plunges to 1.8 percent in July

ISLAMABAD: Pakistan consumer price inflation plunged last month to its lowest level since September 2003 and looks set to fall further, leaving the central bank under pressure to go for another rate cut in the near term.
The Pakistan Bureau of Statistics (PBS) data on Monday showed that the consumer price index (CPI) inflation dipped 12-year low at 1.8 percent year-on-year in July, as prices of food and petroleum products were on the downward trajectory.
“Pakistan economy is heading towards deflation, as for the last several months our wholesale price inflation has been continuously declining,” Dr Ashfaq Hassan Khan, ex-finance advisor said.
“Aggregate demand is low, growth in general sales tax collection at domestic stage is almost zero, private investment wanes, and industrial output is minimal.”
Dr Khan advised the government to follow the expansionary fiscal policy to spur the aggregate demand in economy, which is very low at the moment.
The PBS data showed that CPI inflation stood at 3.2 percent in June 2015 and 7.9 percent in July 2014.
On month-on-month basis, the inflation was recorded at 0.4 percent in July 2015 as compared to 0.6 percent in the previous month and 1.7 percent in July 2014, it said.
In the month under review, utilities charges (housing, water, electricity, gas and fuel) were up 4.47 percent. Health and education became dearer by 3.18 percent and 9.32 percent, respectively.
“While prices of commodities are decreasing energy prices are increasing that signals the government inefficient and poor energy policy,” said Dr Salman Shah, ex-finance minister.
Dr Shah said the government recently raised electricity tariffs, which constrained consumer buying power and industrial production.
Food and non-alcoholic inflation – carrying more than one-third weight in the CPI basket – was down 0.33 percent in July over 2.4 percent in June, 2.2 percent in May and a record low of -1.05 percent in April 2015.
In July 2015, prices of clothing and footwear went up 4.84 percent, and furnishings and household equipment maintenance by 4.46 percent.
Charges related to recreation and culture rose 2.25 percent and restaurants and hotels 4.38 percent in July over the same month in 2014. However, transportation fares were down negative 9.96 percent.
Interestingly, the low inflationary trend, following a fall in global oil prices, allowed the central bank to cut interest rate in successive monetary policy announcements from November 2014 onwards. Last month, the SBP slashed the policy rate for the fifth time to a 42-year low of 6.5 percent in a bid to spur economic growth.
Historically, inflation averaged at 7.99 percent from 1957 until 2015. It was recorded at all time high of 37.81 percent in December 1973 and record low of minus -10.32 percent in February of 1959.
In July 2015, core Inflation, excluding food and energy costs, stood at 4.1 percent as compared to 4.6 percent in the previous month and 8.3 percent in July 2014. The wholesale price index, on a year-on-year basis, dropped 2.9 percent in July as compared to two percent decrease a month ago and increase of 6.6 percent in July 2014.
The sensitive price indicator, which gauges weekly-based inflation in kitchen items, decreased half a percent in July 2015 year-on-year, as compared to increase of 1.1 percent a month ago and 5.9 percent rise in July 2014.
On month-on-month basis, pulse gram prices increased 8.3 percent, fresh fruits 7.2pct, potatoes 6.8pct, Besan 5.6pct, sugar 5.4pct, gram whole 3.1pct, Gur 2.5pct, cigarettes 1.7pct, tea 1.3pct, eggs 1.3pct, meat 1.1pct and beverages 1.1pct in July over the previous month.
However, prices of tomatoes were down 29pct, onions 8.8pct, chicken 5.3pct, fresh vegetables 3.7pct, pulse moong 1.7pct, beans 1.6pct, betel leaves and nuts 1.4pct and fish 1.03pct.
Year on year, gram pulse prices were up 38pct, besan 32.4pct, mash pulse 21.3pct, cigarettes 16.7pct, sugar 15.5pct, chicken 14pct, tea 13.5pct, gram whole 11.2pct and onions 10.7pct over the same month of the last year.
Besides, prices of potatoes were down 62.5pct, cooking oil 12.2pct, tomatoes 11.3pct, vegetable ghee 10.8pct and rice 10.57pct over July 2014. Price of kerosene oil dropped 19.7 percent and motor fuel 18.8 percent.