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August 4, 2020

CPI inflation rises faster than expected in July on runaway food prices


August 4, 2020

ISLAMABAD: Consumer inflation accelerated faster than expected to 9.26 percent in July 2020 as economic activity gradually resumed with the easing of coronavirus lockdowns, driving food and fuel prices higher, Pakistan Bureau of Statistics (PBS) reported on Monday.

The reason for the jump is high food inflation that occupies more than one-third of the Consumer Price Index (CPI) basket. In June CPI was clocked in at 8.6 percent, while July 2019, the reading was recorded at 8.38 percent.

Interestingly, for July 2020, the government hiked the prices of petroleum products up to 66 percent, jacking up petrol by Rs25.58/litre, diesel Rs21.31/litre, and kerosene by Rs23.50/litre and light diesel oil (LDO) by Rs17.84/litre.

It seems that the impact of this increase has not been fully incorporated in CPI, yet the food items took the ‘sympathy effect’ of high oil prices and some kitchen items prices skyrocketed, especially wheat flour, sugar, fruits, vegetables and others. At the same time, the government administration’s control over the prices looks much weaker, and even in same market, prices are being charged differently.

For August too, petrol was made dearer by Rs3.86/litre and diesel by Rs5/litre, LDO Rs6.62/litre, and kerosene was increased by 5.97/litre. The impact of the increase is yet to come in the August CPI.

In FY20, the average inflation was recorded at 10.74 percent, while it peaked to 14.56 percent year-on-year in January.

The Wholesale Price Index (WPI) on the other hand also started picking up and has increased 5.41 percent over June 2020 and 3.23 percent over corresponding month of last year. In June, WPI declined 0.32 percent over July.

Economists believe that as the WPI inflation has lag-effect, so in coming months, a further increase in CPI cannot be ruled out.

The CPI is the main gauge of price changes at the retail level of all goods and services consumed by private households and roughly reflect changes in cost of living of entire Pakistan.

According to CPI basket, on average each Pakistani spends 34.58 percent of his income on food and beverages, 23.63 percent on house rent, water, gas, electricity, and fuel, 8.6 percent on clothing and footwear; 6.92 percent on eating out, 5.91 percent on transportation, 4.1 percent on furnishing and household equipment maintenance, 3.79 percent on education, 2.7 percent on health, 2.21 percent on communication, and 1.59 percent, the least of income, on recreation and culture.

Food inflation in July 2020 stood at 17.8 percent against 14.57 percent in previous month. It was followed by clothing and footwear prices that increased 10.33 percent, health charges 7.81 percent, furnishing and household equipment maintenance charges 7.79 percent, dine-outs 7.53 percent, utilities (housing, water, electricity, gas and fuel) 4.16 percent, recreation and culture 3.82 percent, education 1.08 percent and communication charges increased 0.35 percent. However, transportation charges reduced 4.45 percent over corresponding month of last year.

Except for food inflation, the increase in prices of other categories was less than previous month, indicating it was the food that has strongly increased the overall inflation and which can be managed, but the government seems unsuccessful in controlling the kitchen items prices.

The CPI bulletin says that on month-on-month basis, inflation increased 2.5 percent in July 2020 as compared to an increase of 0.8 percent in the previous month and an increase of 1.8 percent in July 2019.

SPI that gauges essential kitchen items prices on weekly basis, increased by 13.5. In July, core inflation, excluding food and energy costs, increased 8 percent year-on-year in July 2020 as compared to an increase of 11.5 percent a month earlier and an increase of 8.9pc in July 2019. On MoM basis, it increased by 2.8 percent in July 2020 as compared to an increase of 1.4 percent, a month earlier and an increase of 1 percent in July 2019.