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Consumer inflation rises to 8.6 percent in June

Business

July 2, 2020

KARACHI: Consumer inflation rose to 8.6 percent year-on-year in June, compared to 8.2 percent in the previous month, as food prices were seen increasing during the month, official data showed on Wednesday.

On month-on-month basis, it also increased 0.8 percent in June, compared to an increase of 0.3 percent in the previous month and an increase of 0.5 percent in June 2019, said the Pakistan Bureau of Statistics (PBS).

Consumer inflation arrived at 10.74 percent for the last fiscal year of 2019/20. Though the number is within the central bank’s range of 11 to 12 percent, it is much higher when compared with 6.8 percent in FY2019 and 4.68 percent in FY2018.

Analyst Noman Ahmed at Insight Securities attributed the June uptick to higher prices of food and other products.

“Average inflation for FY21 would likely clock in at 6.75 percent… we expect inflation to remain at 6.5 percent during 1HFY21 attributable to higher base effects,” said Ahmed. “However, possible damage to crops due to locust outbreak on essential crops may keep food index more vulnerable.”

A significant spike in domestic oil prices is expected to build inflationary pressure this month. The government raised petrol prices in late June by nearly Rs26, citing recovery in global oil prices.

PBS data showed that food inflation rose 14.57 percent in June over the same month a year earlier. Food basket has around 35 percent weightage in consumer price index. Housing, water, electricity, gas and fuel prices increased 5.42 percent year-on-year.

The State Bank of Pakistan delivered a cumulative reduction of 625 basis points in the interest rate since mid-March to bring it down at 7 percent, commensurate with the decline in inflation

“The inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased,” it said in a statement last month. “Against this backdrop of receding demand-side inflation risks, the priority of monetary policy has appropriately shifted toward supporting growth and employment during these challenging times.”

Ahmed expected inflation to remain near the target of 6.5 percent set by the government for FY2021.

“Real interest is likely to remain at 1.25-1.5 percent during FY21 as it is currently hovering at negative 0.66 percent against historical average of 1.8-2 percent,” he said.

PBS further said CPI inflation urban increased by 7.6 percent year-on-year in June, compared to an increase of 7.3 percent in the previous month and 8.1 percent in June 2019. On month-on-month basis, it increased 0.7 percent in June, compared to an increase of 0.3 percent in the previous month and an increase of 0.3 percent in June 2019.

CPI inflation rural increased by 10 percent on year-on-year basis in June, compared to an increase of 9.7 percent in the previous month and 7.9 percent in June 2019. On month-on-month basis, it increased by 1 percent in June, compared to an increase of 0.3 percent in the previous month and an increase of 0.7 percent in June 2019.

Wholesale price index (WPI) inflation increased by 0.9 percent year-on-year in June, compared to an increase of 1.5 percent a month earlier and an increase of 14 percent in June 2019. WPI inflation decreased by 0.3 percent month-on-month in June, compared to a decrease of 2.1 percent a month earlier and an increase of 0.2 percent in corresponding month of last year. Sensitive price indicator (SPI) inflation rose 11.5 percent year-on-year in June, compared to an increase of 11 percent a month earlier and an increase of 9.3 percent in June 2019. SPI inflation increased by 1.4 percent in June compared to an increase of 2.2 percent a month earlier and an increase of 0.9 percent in June 2019.