Inflation hovers around 2-year high

ISLAMABAD: Consumer prices inflation rose 13 percent in January from a year earlier, increasing for a fifth month in a row at the fastest pace in nearly two years in a sign of broadening inflationary pressure from rising energy and food costs.

The consumer price index (CPI) was at 12.3 percent. During the last ten and a half years, the latest number is the third highest CPI reading.

Previously, it was recorded at 13.3 percent in June 2011 and 14.6 percent in January 2020, the Pakistan Bureau of Statistic (PBS) data showed on Tuesday.

Analysts said prices of staples like flour, sugar, oil and rice have almost doubled over a year. At the same time, the rupee’s sharp decline against the dollar further squeezed consumers’ purchasing power.

According to the statistics, CPI doubled from 5.7 percent in January 2021 to 13 percent in January 2022.

The seven-month (July-January 2021-22) average inflation was recorded at 10.26 percent compared to 8.19 percent in the same period of last year.

The government has set a CPI target of 8 percent in the current fiscal year of 2021-22, while the State Bank of Pakistan is anticipating inflation in the range of 9 to 11 percent.

Urban inflation increased 13 percent year-on-year in January 2022 as compared to an increase of 12.7 percent in the previous month and 5 percent in January 2021.

Similarly, rural CPI inflation increased 12.9 percent YoY in January as compared to an increase of 11.6 percent in the previous month and 6.6 percent in January 2021.

Excluding the food and energy components, urban core-CPI increased by 8.2 percent YoY in January against increase of 8.3 percent in the previous month and 5.4 percent a year ago in the same month. Likewise, rural core-CPI increased 9.0 percent YoY compared to an increase of 8.9 percent in the previous month and 7.8 percent in January, 2021.

Interestingly, the wholesale price index (WPI) showed 24 percent increase in January compared to 26.2 percent a month earlier and 6.4 percent in January 2021.

A cursory glance at the PBS data showed that during January, the major upward pressure in prices came from two components in the CPI basket that have the highest weightage. These include food and beverages that have a share of more than one-third (or 34.58 percent) and utility charges (housing, water, electricity and fuel) with around one-fourth (or 23.63 percent share). These components registered a sharp increase during the month under review.

Food and beverages prices increased 12.82 percent up from 10.3 percent in the previous month. Commodities that registered an increase included masoor up 6.3 percent, gram whole 4.8 percent, fruit 4.1 percent, besan 3.8 percent, gram pulse 3.4 percent, mash pulse 3.4 percent, wheat 2.7 percent, and moong pulse up 1.9 percent. However, tomatoes prices went down 43 percent, potatoes 13 percent, condiment and spices 7.5 percent, and chicken 2.2 percent.

On YoY basis, cooking oil became dearer by 54 percent, vegetable ghee 47 percent, mustard oil 47 percent, masoor pulse 41 percent, fruits 28 percent, gram whole 25 percent, meat 22 percent, chicken 17 percent, gram pulse 16 percent, beans 15 percent, mash pulse 12 percent, and vegetables 12 percent.

Utility charges (housing, water, electricity and fuel) increased by 15.53 percent in January 2022 compared with 16.6 percent last month. Year-on-year, electricity charges increased 56 percent, liquefied hydrocarbons 53 percent, motor fuel 36 percent, footwear 25 percent, cleaning and laundering 22 percent, washing soap/detergents/matchbox 18 percent, motor vehicle accessories 14 percent, woollen readymade garments 13 percent, and plastic products prices increased 12 percent over the same month of last year.

Although the transport sector has a low share in the CPI basket, its cost increased the highest at 23.1 percent, furnishing and household equipment maintenance 13 percent, hoteling 12.97 percent, clothing and footwear 11.18 percent, health charges 9.15 percent, and cost of recreation and culture increased 7.84 percent. Similarly, education charges went up 3.17 percent, whereas communication charges increased 2.57 percent over the corresponding month of last year.

Khaqan Najeeb, former advisor, ministry of finance said elevated inflation in double-digits indicates a combination of higher demand pressures, supply shortfalls and prices of imported inputs. Rising prices have hit households globally.

“However, they have had a more pronounced effect in Pakistan, which was heavily dependent on imports like petroleum products, edible oil, machinery, food, vehicles, mobiles and industrial raw materials. In Pakistan imports account for more than 25 percent of GDP,” Najeeb added.

“Global price effect has been worsened by a sharp weakening of the rupee, weakening its purchasing power internationally.”

Najeeb emphasised that food-price inflation was crushing Pakistan’s low-income citizens who spend more than half of their incomes on food. “Low productivity of agriculture and the saga of regulated prices of energy were two key domestic drivers of inflation in the economy.”