The country’s Consumer Price Index (CPI) clocked in at 3.2 per cent year-on-year (YoY) during 11 months of the current fiscal year compared to 4.2 per cent in April 2016.
According to Pakistan Bureau of Statistic (PBS) data issued here on Wednesday, the CPI decreased by 0.2 per cent in May 2016 as compared to an increase of 1.5 per cent in the previous month and an increase of 0.8 per cent in May 2015.
Market analysts say that the main reason behind this declining CPI inflation was the reversal in food inflation during the month, which contributes around 35 per cent to the CPI, as well as a high base effect.
“Food inflation in May 2016 clocked in at a seven-month low of 0.6 per cent YoY,” an analyst of Topline brokerage house said. This compares with 3.5 per cent food inflation recorded in the previous month and 2.2 per cent in May 2015. On MoM basis, food inflation was down 0.9 per cent in May 2016 vs 2.5 per cent in the previous month.
Major food items which saw a decline during the month included tomatoes (down 49 per cent), onion (down 16 per cent), chicken (down 6 per cent) and wheat (down 2 per cent). On the other hand, prices of food items including potatoes and fresh fruits were down 4-9 per cent.
Housing, water, fuel and lighting segments which also hold a significant weight in CPI were up 5.3 per cent YoY in line with last month’s inflation of 5.3 per cent. It decreased by 0.2 per cent in May 2016 as compared to increase of 1.5 per cent in the previous month and an increase of 0.8 per cent in May. Stability in prices of major construction input items and utilities kept inflation in check.
In the 11 months of 2015-16, inflation averaged 2.7 per cent compared to 4.8 per cent during the same period of last year due to lower oil and food inflation.
During fiscal year 2015-16, inflation is expected to clock in at 2.7 per cent, which is well below the government target of 6 per cent and SBP’s revised target of 3 per cent. For 2016-17, analysts expect inflation to remain in the range of 4-5 per cent with expected rise in oil prices and new taxation measures.
SBP in its recent monetary policy announced 25 basis points cut in policy to 5.75 per cent. The analyst expected SBP to further reduce policy rate by 25 basis points to 5.5 per cent in 2016 as real interest rates still stand at around 3 per cent.
Pickup in food inflation and higher than expected food inflation remain key risks that can adversely affect inflation outlook.
