Key inflation indicator nudges up to 12-month high

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Despite the forecast of 3.8 per cent by some analysts, the key inflation indicator for the month of April stood at 4.17 per cent – the highest in the past 12 months.

The Consumer-Price Index (CPI), a basket of different price variables, including food items, transportation and rent, rose to 1.5 per cent on a month-on-month basis in April, against 0.2 per cent in March.

While the average inflation rate for the year stood at 2.79 per cent against 4.8 per cent of the last year, Topline Securities attributed the decrease to lower food and oil prices during the period, and said it was above expectations.

The inflation rate is ranging between four per cent and above for the past three months. It saw the lowest dip of the fiscal year in September last year ie, 1.32 per cent, and gradually increased in the last six months. It marked four per cent increase for the first time in January this year.

The commodities which experienced a major surge in prices on month-on-month basis included rent and perishable and non-perishable food items especially dried foods and sugar (10.38 per cent).

“With the month of Ramazan ahead of citizens, food prices are expected to soar even more and may become the reason behind increase in inflation in the coming months,” observed Aadil Nakhoda, assistant professor of Economics at the Institute of Business Administration.

Although inflation was at the highest level, it was still manageable, the professor said, adding, “Not much can be said about the interest rate in the next monetary policy, as exports, investment and borrowing also played vital role in addition to inflation rate.”

However, Topline Securities said that a reduction of 50bps from six per cent to 5.5 per cent is expected in the policy rate by the State Bank of Pakistan.

While prices increased in general, that of rice (12.75%), onion (10.54%), cooking oil (10.09%), eggs (10.01%), and vegetable ghee (4.29%) have seen a decline in prices on a year-on-year basis.

The overall prices in the coming months are expected to rise because of summer and Ramazan. “People tend to spend more on food and baverages during the month of Ramazan due to which a rise in inflation is expected for the next two months,” said senior economist, Muzammil Aslam.

Furthermore, the projection made by the International Monetary Fund, in its World Economic Outlook (WEO) update, forecasts that the inflation rate of Pakistan for the year 2016 will rest at 3.6 per cent on a year-on-year basis.