The State Bank of Pakistan has brought out a monthly pamphlet 'Inflation Monitor' to inform the public about the process of inflation. This is based on the price data meticulously compiled by the Federal Bureau of Statistics and shared with the central bank in detail.
Maintaining price stability is the primary objective of all central banks around the world. Hence, the importance of continuous monitoring of inflation can hardly be overemphasised.
While the State Bank of Pakistan always monitors the price trends very closely, public at large remains unaware of underlying detailed statistical analysis of price trends.
In introducing it, Dr Ishrat Hussain, Governor, State Bank of Pakistan, has said: "Although we have kept the scope of this publication only to statistical analysis of price trends from various angles, it is hoped that readers will find it useful.
Objective of this pamphlet is to provide as much detail as possible about the price situation so that our fellow citizens are able to form an independent outlook for the emerging price situation. Of course, readers will also come to know about SBP views on inflation that help set our monetary stance shared with the public twice a year with our 'Monetary Policy Statement'."
Core inflation reflects permanent or the persistent part of the overall inflation. For this reason, it is also called underlying inflation. It roughly suggests the future course of overall inflation in an economy; that is why it is important from the point of view of policy making.
State Bank of Pakistan computes core inflation both by the method of exclusion and that of the weighted trimmed mean as well. Both the estimates of core inflation have been exhibiting visible deceleration since the start of FY06. However, the deceleration was more pronounced in the core inflation by 20 percent trimming.
CONSUMER PRICE INDEX (CPI) Consumer price inflation Y-o-Y has shown slight resurgence during the month of September 2005, mainly due to the low base and due to the persistently rising non-food inflation.
During September 2005, non-food inflation has been recorded higher, in magnitude, than the food group inflation, which reflects that the era of high food inflation, where it reached to about 16 percent YoY, during April, has been over, and the present high inflation is more non-food-driven.
The steep deceleration in Y-o-Y food inflation has pressured the annualised food inflation and it can be claimed safely that the annualised food inflation will still decelerate further in the coming months. However, the CPI non-food inflation has been rising both on YoY as well as down trend during September 2005.
The deceleration in the food group was witnessed since May 2005, on the back of some declines recorded in the price of wheat. Similarly, prices of minor crops including tomatoes and onion were also recorded low as compared to the high prices recorded during the earlier part of H2-FY05.
Still the rise in prices of some important food staples including milk, meat and sugar has kept the food inflation quite high during the last two months of the same year. September 2005 also witnessed decline in the price of wheat and subsequently in the price of flour as compared to their prices during the same month last year.
The corrections were the result of good harvest and the administrative measures of the government to restrict inflation from rising any further.
REGIONAL INCIDENCE OF INFLATION Inflation remained high and small among big and small cities. While Islamabad recorded the highest rate of YoY inflation during September 2005, Nawabshah witnessed the other extreme.
Similarly, out of the four provincial capitals, Lahore recorded the highest inflation while Karachi was at the lowest extreme. Quetta was almost at the average inflation rate recorded in the whole of the country; whereas Peshawar recorded a lower inflation rate than that recorded in Lahore yet higher than the average 8.5 percent YoY inflation recorded for the economy on the whole.
The impact of fuel prices on overall inflation is clearly evident from a moderate inflation of 4.9 percent excluding fuel, lighting & lubricants sub-index.
Excluding both volatile components ie food and fuel, lighting & lubricants, the WPI witnesses a mere 1.9 percent inflation in September 2005.
Food prices, at last, dropped to single digit during the recent couple of months. The food sub-index witnessed an increase of 7.5 percent in September 2005 compared to 10.5 percent in the corresponding month of last year. The food sub-index witnessed month-on-month declines for the last two months.
This was largely due to decline in wholesale prices of onion, eggs and tomato and deceleration in the prices of wheat & wheat-based products. Moreover, prices of vegetable ghee and cooking oil have been on declining trend since November 2004 and March 2005, respectively, following declining trend in palm and soybean oil prices in international market.
However, wholesale prices of pulses are still rising and remained strong amid imports from regional countries including India. Yet, prices of a number of other food items including potato, sugar, chicken, etc hardened.
SENSITIVE PRICE INDICATOR-SPI SPI is mainly an indicator of inflation in kitchen items along with the price change of petrol and diesel. It is a subset of CPI and consists of 53 items, where most of these items belong to the food group.
During September 2005, a slowdown was observed in the sharp deceleration of monthly SPI inflation. SPI YoY inflation, based on monthly data, has earlier been decelerating sharply since May 2005, however, during September 2005, it became somewhat stable, while SPI YoY inflation based on weekly data has shown visible resurgence during the same month.
However, the YoY inflation is still below the 52 weeks moving average inflation; therefore, it is expected that the annualised SPI inflation will still remain decelerating during the weeks ahead.
The earlier deceleration in the SPI point to point inflation was due to decline in price of wheat and wheat products on the back of some administrative measures taken by the government to stabilise the prices of necessary food staples.
However, later on, the high priced oil pushed the SPI inflation up. The surge in SPI inflation during September 2005 was greatly influenced by the fuel price inflation.
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