CPI edges down in December

ISLAMABAD: Consumer inflation inched down to 12.6 percent year-on-year in December compared to 12.7 percent in the previous month, official data showed on Wednesday.

Pakistan Bureau of Statistics (PBS) data showed that consumer price index (CPI) inflation fell 0.3 percent month-on-month in December compared to a rise of 1.3 percent in the previous month and a decrease of 0.3 percent in December 2018.

Food inflation remained stubborn with a 19.74 percent year-on-year reading during the last month. On month-on-month basis, food prices were seen declining weighing down overall national inflation in December on month-on-month basis as foods account for 35 percent of the basket.

The annual CPI was in line with the market expectations as higher number was anticipated on increase in energy and food prices. Analysts were expecting the number going beyond the central bank’s target range of 11 to 12 percent.

However, there is a consensus that inflation is reaching its optimal point and therefore would decelerate to give a leeway for a much-awaited rate cut in March and onwards to rejuvenate the faltering economy. Analysts don’t see a rate cut in January monetary policy announcement.

Tahir Abbas, deputy head of Research at Arif Habib said inflation is peaking in January. “Inflation is expected to come down in February 2020 and significant reduction [is expected] from 2HCY2020,” Abbas said. Ministry of finance also advocates no need of further rate hikes with the existing interest rate standing decade-high of 13.25 percent. International Monetary Fund (IMF) lowered inflation projection for Pakistan to 11.8 percent from 13 percent in the current fiscal year of 2019/20.

“Administrative and energy tariff adjustments are expected to offset the effects from weak demand,” the finance ministry said in a statement following the IMF’s first review of Pakistan’s $6 billion extended fund facility last week.

The central bank governor has already said there would be monetary easing “once disinflation is firmly entrenched”.

SBP wants to maintain real interest rate in the range of 2 to 2.5 percent. Currently, it is 1.12 percent. Average inflation for the first half of the current fiscal year was recorded at 11.11 percent compared with 5.96 percent in the corresponding period of 2018/19 and 4.74 percent in the similar period of 2017/18. The latest consumer inflation was the fourth reading since the revision of base year to 2015/16 from 2007/08. The new metrics breaks down consumer inflation as general, rural and urban. Under the old method, annual consumer inflation was recorded at 12.42 percent in December.

CPI inflation urban increased 12 percent on year-on-year basis in December 2019 compared to an increase of 12.1 percent in the previous month and 5.9 percent in December 2018. On month-on-month basis, it decreased 0.4 percent in December 2019 compared to an increase of 1 percent in the previous month and a decrease of 0.3 percent in December 2018.

CPI inflation rural increased 13.6 percent on year-on-year basis in December 2019 compared to an increase of 13.6 percent in the previous month and 4.6 percent in December 2018. On month-on-month basis, it decreased 0.3 percent in December 2019 compared to an increase of 1.9 percent in the previous month and a decrease of 0.3 percent in December 2018.