Its down and its out. Well at least for now. Consumer prices rose at its slowest in many a new moon last month, thanks mostly to falling commodities abroad and consequently at home due to the spill over affect.
According to the release by Pakistan Bureau of Statistics (PBS), food prices in August 2015 fell about 0.57 percent, as 8.08 percent decline in perishable food prices more than offset a marginal year-on-year rise of 0.93 percent in non-perishables. The former was led by 62 percent year-on-year fall in the price of potatoes, but also included the likes of wheat, chicken, fish, and onion. The latter included pulse gram, tea, and sugar.
Meanwhile, falling global crude oil prices led to 0.75 percent decline in transport sector as motor fuel, which alone accounts for 3 percent weight of the CPI basket, dropped by 19.67 percent year-on-year (0.99% MoM). But then there is no reason to rejoice or indeed rely on it, for it is only a monthly phenomenon. Global crude oil prices are already above last months prices, which means the fuel price at home can be expected to rebound come next month.
Looking ahead a host of offsetting factors can be seen into play. At the one end, forecasts of high oil production and weak world demand imply that global oil price might not have bottomed out yet, which should keep domestic inflation on the lower side.
Yet gas price hike announced earlier this week can have a longer term impact; which should send economists back to their models. Food prices can be expected to go up as fertilizer sector has taken the biggest hit of the gas price increase, whereas cement prices have already gone up. Plus, beginning November, and especially December onwards to March, a low base affect could also kick in, pushing CPI northwards.
In any case, lower CPI is not Cinderella story; it is no happy ever after. The current lower inflation environment is fragile and will continue only as long as food and fuel prices keep their heads low. Besides, as the central bank cautioned in July, "with the weakening of productive capacity of the economy, as indicated by deteriorating investment to GDP ratio, slightly quicker pick up in aggregate demand is enough to pose upside risk to inflation."
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