CPI: no respite!

The headline inflation clocked at 12.3 percent in Dec 21 –highest since Feb20. It was expected. The CPI index remained almost unchanged over the last month. The crazy season of monthly increase finally has a respite – after increase of 2.1 percent in Sep, 1.9 percent in Oct and 2.9 percent Nov, the index fell by 0.03 percent in December. However, the base effect damage is already done – due to which, the inflation number shall remain in double digits for the next six months.

The monthly respite has primary been witnessed in food sub index – down by 3.35 percent. It’s mainly the perishable food items – that fell by 21.9 percent. However, the increase in almost all the other sectors is high enough to dilute the fall in heavy weight (35%). The secondary round of inflation is already creeping in. The energy prices are hitting hard. And the overall impact of global prices increases and currency depreciation are depicting themselves in the inflation.

The Wholesale price index is up by 26.2 percent and the sensitive price index by 20.9 percent. These are not one-off increases. The 1HFY22 average WPI and SPI stood at 21.5 percent and 17.2 percent respectively. This is much higher than CPI of 9.8 percent – urban at 10.1 percent and rural at 9.4 percent.

The WPI increase is mainly attributed to global commodity prices increase and in general to global inflation. Even the double digits inflation lately is observed in developed economies as well. The WPI in 1HFY21 was just 4.4 percent in Pakistan. However, the case of SPI is rather dismal. This half year high inflation is on top of same period last year of 17.2 percent. That means the fall out for the poor and lower middle class demands immediate redressal.

The 1HFY22 CPI stood at 9.8 percent as compared to 8.6 percent in corresponding period last year. The pain this year is higher for the urban dwellers which stood at 10.1 percent as compared to 7.3 percent in the 1HFY21. The situation is other way round in rural areas where 1HFY22 inflation at 9.4 percent is lower than last year’s toll of 10.6 percent.

The other worry is core inflation which is inching up too. The urban core stood at 8.3 percent in Dec while the rural core was recorded at 8.9 percent. Both recorded a monthly increase of 1.1 percent. Th trimmed core is in double digits. On half year basis, the core inflation is up by 7.1 percent in 1HFY22 from 6.4 percent in the 1HFY21.

In Dec, apart from food everywhere there is some increase. The energy prices moved up due to higher electricity charges which are applied after a lag. The fuel adjustment cost in Dec is at Rs4.7KWH versus Rs2.5/KWh in Nov. Electricity charges are up by 14 percent in Dec from Nov and by 60 percent from Dec last year. Then monthly increase in footwear (9.2%), electrical appliances (7.8%) and other items are due to higher global commodity prices and currency depreciation.

Inflation increase may ease in the second half. However, the high base shall keep prices high. The key commodity to watch is oil as many other commodities are either its derivatives or somehow linked to oil prices.

The January inflation may be touching 13 percent; but not the interest rates, as monetary policy to shall keep mum in January as promised by the central bank governor himself.