Consumer inflation hits four-month high of 8.7pc in Feb

ISLAMABAD: Annual consumer inflation rose to 8.7 percent in February compared to 5.7 percent in January, as prices of non-perishable foods and fuel continued to increase, the official data showed on Monday.

The Pakistan Bureau of Statistics (PBS) data showed that consumer inflation increased 1.8 percent month-on-month in February compared to a decrease of 0.2 percent in the previous month and a decrease of 1 percent in February last. Annual inflation rate was 12.4 percent in February 2020.

Prices of non-perishable foods that have around 30 percent weight in the consumer price index basket showed upward trend year-on-year and month-on-month. Their prices rose 2.4 percent in February over January and 4.3 percent over February 2020, according to the PBS.

“Going forward with rising oil and commodity prices, inflation will remain slightly on the higher side,” said Mohammed Sohail, CEO of Karachi-based brokerage house Topline Securities. Consumer inflation was recorded at 8.9 percent in October last.

The central bank has kept the interest on hold at seven percent three times consecutively with inflation expectations well anchored. Nonetheless, its uptrend can lead to reversal in soft monetary policy stance after March – a possibility that is also under market’s consideration.

“With the SBP forward guideline, interest rates might increase by 50 basis points in May if needed,” said Tahir Abbas, head of Research at Arif Habib. “We have already started seeing impact of increased oil prices in inflation.”

The SBP said the any adjustments in the policy rate are expected to be measured and gradual “to achieve mildly positive real interest rates”. "In the absence of unforeseen developments, the MPC [Monetary Policy Committee] expects monetary policy settings to remain unchanged in the near term,” it said in a January statement, denying its link with resumption of International Monetary Fund’s loan program.

BMA Capital Management Executive Director Saad Hashmey said interest rates are expected to remain unchanged in incoming monetary policy in March, which is in line with State Bank’s forward guidance in January’s monetary policy announcement.

“Inflation at 8.7 percent is higher than our expectations. However, it remains within State Bank's forecasted range of 7-9 percent for FY21,” said Hashmey.

PBS data showed that prices of chicken increased 37.01 percent in February over January in urban areas, followed by electricity charges (29.45pc), foot ware (14.66pc), cooking oil (11.92pc), fruits (9.26pc), vegetable ghee (9.03pc), condiments and spices (5.5pc), pulse gram (4.48pc), mustard oil (3.8pc), pulse masoor (3.28pc), readymade garments (2.93pc), pulse mash (2.62pc), cotton cloth (2.52pc), hosiery (1.97pc), motor fuel (1.64pc), and rice (1.2pc).

In urban areas, prices of tomatoes decreased 58.7 percent month-on-month in February, followed by potatoes (12.92pc), eggs (10.38pc), onions (7.88pc) and vegetables (7.35 pc) and liquefied hydrocarbons (3.94 pc).

In rural areas, prices of chicken also rose 31.54 percent, followed by electricity charges (29.45pc), fruits (9.92pc), vegetable ghee (7.05 pc), cooking oil (5.58pc), mustard oil (3.76pc), pulse gram (2.46pc), motor fuels (1.6pc), pulse masoor (1.57pc), motor vehicles (1.44pc), pulse moong (1.18pc), rice (1.18pc), drugs and medicines (1.11pc) and pulse mash (1.01pc).

Prices of tomatoes fell 56.33 percent, followed by eggs (18.41pc), potatoes (17.48pc), onions (8.30pc), vegetables (6pc), liquefied hydrocarbons (3.01pc) and construction input items (1.57pc) and wheat flour (1.1pc) in rural areas.

In February, prices of eggs increased 48.1 percent year-on-year, followed by electricity charges (43.06pc), chicken (36.33pc), condiments and spices (31.13pc), wheat (23.79pc), foot ware (22.99pc), mustard oil (22.71pc), beans (17.34pc), vegetable ghee (17.27pc), sugar (17.16pc), personal effects (16.46pc), cooking oil (15.39pc), cotton cloth (14.7pc), milk (14.65pc), wheat flour bag (13.51pc), cleaning and laundering (13.13pc) and woolen readymade garments (11.21pc). Prices onions decreased 29.72 percent, followed by tomatoes (29.49pc), fresh vegetables (22.58pc) and fish (7.37pc).