Pakistan’s Consumer Price Index (CPI) inflation in October 2015 clocked in at 1.6 per cent as against 1.3 per cent in September 2015 due to low base effect and revision in house rent index.
On month on month basis, inflation increased by 0.5 per cent in October 2015 as against a decline of 0.1 per cent in September 2015 and an increase of 0.2 per cent in October 2014.
Housing, water, fuel and lighting segment (weight of 29 per cent in CPI) increased by 5.3 per cent year on year in October 2015, as against 5.5 per cent in September 2015. On MoM basis, this segment was up by 0.8 per cent versus 0.7 per cent during the previous month, mainly due to seasonal revision in house rent index.
Food inflation (weight of 35 per cent in CPI basket) declined by 0.4 per cent YoY as against a decline of 1.1 per cent in September 2015 and an increase of 4.4 per cent in October 2014. Stable supply of food items in market has kept prices of food items in check, which represents the highest weight in CPI.
Transport index with a weight of 7 per cent in CPI was down by 14.2 per cent YoY in October 2015 as against a decline of 14.4 per cent in September 2015 and an increase of 4.0 per cent in October 2014 amid lower oil prices.
Core inflation, a measure of non-food and non-energy inflation remained flat at 3.4 per cent YoY in Oct 2015 despite slight uptick in headline inflation. This indicates low demand side pressure in economy.
In four month of the current fiscal year 2015-16, CPI inflation averaged 1.6 per cent as against 7.1 per cent in the same period last year. Stable food and commodity prices and low aggregate demand is likely to keep CPI inflation below 5 per cent in 2015-16.
The government had set an inflation target of 8 per cent for full year 2015-16 while SBP’s revised inflation estimate is 4.5-5.5 per cent.
In view of an expected increase in inflation from November 2015 (due to low base effect), analysts anticipate SBP to keep the policy rate unchanged at 6 per cent in upcoming monetary policy in November. It is anticipated that inflation will cross 2 per cent from November 2015.
SBP had lowered the policy rate by 50bps to 6 per cent in its last monetary policy announcement in September 2015.
The analysts said there could be major recovery in oil prices and further depreciation in Pak Rupee.
