CPI inflation at 1.7 percent,casts shadow over economic stability

ISLAMABAD: Pakistan’s headline inflation for August clocked in at 1.7 percent, the lowest reading since July 2003, to the surprise of most economists who portend a major dent to macroeconomic stability in time to come.
The consumer price index (CPI) inflation was recorded at 1.7 percent in August 2015 as compared to 1.8 percent in July and seven percent in August 2014, the Pakistan Bureau of Statistics reported on Tuesday.
It was an increase of 0.2 percent in month under review as compared to 0.4 percent increase in the previous month and 0.3pc in August 2014.
Average inflation of two months (July-Aug) stood at 1.76 percent as against 7.44 percent in the same period last year.
In August, year on year wholesale price index (WPI) inflation was recorded at negative 2.87 percent.
Economists have already warned of deflation in the wake of continuous fall in inflation for the last several months.
They said it will further go down as the WPI inflation is also much lower than expected, calling it a possible threat to macroeconomic stability.
“Just as inflation and aggregate demand falls so does the growth in sales tax collection at the domestic stage,” an economist said. He added that it also hurts industrial production.
In August, core inflation, excluding food and energy costs, stood at four percent as compared to 4.1 percent in July and 7.9 percent in the same month a year ago.
Food and non-alcoholic inflation – carrying more than one-third weight in the CPI basket – was down 0.57 percent in August over the same month last year and recorded at 0.34 percent over July 2014.
Charges of utilities (housing, water, electricity, gas and fuel) were up 4.77 percent. Health and education became dearer by 3.2 percent and 9.3 percent, respectively.
Prices of clothing and footwear went up 4.8 percent, and furnishings and household equipment maintenance 4.25 percent in the month under review.
Charges related to recreation and culture rose 2.12 percent and restaurants and hotels 4.34 percent in August over the same month in 2014. However, transportation fares were down by negative 10.4 percent.
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 a record low of minus 10.32 percent in February of 1959.
The sensitive price indicator, which gauges weekly-based inflation in kitchen items, decreased one-and-a-half percent in August year-on-year, as compared to decrease of half a percent a month ago and 5.17 percent rise in August 2014.
On month-on-month basis, tomatoes price increased 33 percent, vegetables 17.8 percent, eggs 12.4 percent, tea 7.2 percent, gram pulse 6.5 percent, besan 4.4 percent, potatoes 3.6 percent and gram whole 3.05 percent in August over the previous month. Electricity charges increased 1.47 percent.
However, prices of chicken were down 16.7 percent, onions 8.8 percent, chicken 5.3 percent, fresh vegetables 3.7 percent, pulse moong 1.7 percent, beans 1.6 percent, betel leaves and nuts 1.4 percent and fish 1.03 percent.
Year on year, prices of pulse gram were up 46.7 percent, besan 39.4 percent, tea 21.8 percent, mash pulse 17.4 percent, tomatoes 16.7 percent, cigarette 16.4 percent, whole gram 14.6 percent and sugar 13.7 percent over the same month last year. Besides, prices of potatoes were down 62.3 percent, cooking oil 12.5 percent, vegetables ghee 11.1 percent and rice 10.9 percent over the same month last year.