CPI numbers for November 2011 came as a pleasant surprise with year-on-year inflation for the month showing an increase of just 10.19 percent. This is the lowest year-on-year inflation not only for this fiscal year, but also for the last 23 months as a lower hike in a similar comparison was last witnessed in December 2009 at 8.8 percent. Even the month-on-month inflation at 0.29 percent was a pleasant break, as month-on-month inflation since the beginning of this fiscal year has been over 1 percent and the same has averaged about 1.3 percent in 4MFY12. The year-to-date average of 5MFY12 stands at 11.1 percent, the lowest year-to-date average since FY11. These welcome developments in CPI can be largely attributed to a high-base effect from the previous year and are expected to mitigate in the latter half of the fiscal year. Delving into the sub-indices shows that to a considerable extent, the fall in November is due to a slump in food prices, with the non-perishable food category showing the lowest year-on-year increase for this fiscal year since Aug-11, and the perishable category rising by less than two percent, year on year, compared to about 7 percent last month. In fact, on a month-on-month basis, the prices of perishable commodities actually declined, with the month-on-month CPI of the same registering at minus 1.8 percent for November 2011. Decrease in prices of fresh vegetables, chicken and fresh fruits in November are the main reasons for this trend. Similarly, the housing, water, gas and other fuels sub-index also depicted a slowing increase, with the lowest year-on-year and month-on-month rise since August, this fiscal year. Together, the food and housing sub-indices make up about 65 percent of the total weight in CPI and hence have been the main drivers for pulling down inflation this month. Even the transport sub-index showed a month-on-month decline in inflation numbers, with the year-on-year number clocking in at 13.16 - the lowest this fiscal year since August. As for trimmed core and non-food-non-energy (NFNE) inflation, while the former registered a year-on-year increase of 11.5 percent in November compared to 12.6 percent in November 2010; the latter showed a slight increase with a year-on-year rise of 10.4 percent in November this year as opposed to 9.4 percent in November 2010. Going forward, however, there is a likelihood of inflationary pressures resurging, as hinted at in the last monetary policy statement of SBP: "The sifting of commodity level CPI data reveals that the number of CPI items exhibiting year-on-year inflation of more than 10 percent is consistently increasing and almost all of these items belong to the non-food category." Further, the wheat support price has also been increased by 10.5 percent to Rs.1,050 per 40kg, further strengthening the likelihood of higher prices in coming months. Dr. Ashfaque H. Khan, Director General and Dean NUST Business School, told BR Research earlier, "Empirical evidence suggests that CPI inflation rises by 3 percent for every 10 percent increase in support prices." Besides, risk of inflationary pressures due to heavy government borrowing also persist as the SBP stated in its latest monetary policy statement, "The main determinants of this inflationary behavior are government borrowing from the banking system and inertial effects of high inflation on its expected path." Therefore, before celebrating inflations unexpected about turn, these critical factors need to be weighed in carefully.
s ==================================================== CPI November 2011 ==================================================== Group Y/Y (%) M/M (%) ==================================================== General 10.19 0.29 Food & non-alcoholic beverages 10.02 0.08 Non-perishable food items 11.83 0.47 Perishable food items 1.68 -1.83 Housing, water, electricity, fuels 7.4 0.06 ==================================================== Transport 13.16 -0.14 ====================================================
Source: FBS
Comments
Comments are closed.