Inflation at 32-month high

The CPI has surely started to grow more muscle - having recorded a 32-month high of 5.02 percent in May 2017. There were a lot of firsts as the psychological barrier of 5 percent year-on-year inflation was also broken in the process, for the first time since October 2014. The 12-month moving average also crossed 4 percent, for the first time in over two years, standing at 4.1 percent.

No surprises that food inflation remains at heart of gradual uptick in inflation. For the first time since September 2014, has food inflation has averaged north of four percent for three months back-to-back.

Food inflation fell marginally by 0.2 percent on a month-on-month basis, having earlier increased by 2 percent and 1.9 percent in the preceding two months. There appears to be some sort of seasonality in food price index and May, as the month has on an average seen a 0.2 percent month-on-month decline based on 5-year averages.

Expect the two months to follow to record monthly increases in food inflation, as Ramadan and Eid have traditionally witnessed jumps over previous months. On a yearly basis, milk prices have made the biggest impact on food sub-index, as it alone accounts for nearly 6 percent in the entire basket.

The other key sub-index of housing and utilities has also shown considerable increase over previous year. The house rent index, that is updates every quarter, after a very long time showed an year-on-year increase nearing 7 percent. Recall that the house rent sub index has been heavily criticized for being deliberately or otherwise shown at the lower side - raising questions on the methodology and accuracy. Now that the rates are high, it is a tell tale sign that core inflation is surely picking up.

Education and health, became dearer in double digits. And that is a worrying sign, because there is no coming back for these two prices. Surely something has to give in order to control such hike in the key social sectors.

Improving the public system, without directly controlling prices, can alone do a world of good, but that is another debate. (Un)fortunately, we spend more on milk every month than on education and health combined. So these numbers are not going to be very heavy on overall CPI anytime soon, hence the attitudes. Just one more month to go, inflation is all set to be around 4.2 percent, if the CPI for June hovers in the band of 4-5 percent. Core inflation has consistently been north of 5 percent for the past eight months, and that has taken the 12-month moving average over 5 percent for the first time in over two years. It may not go out of control, but the trends in the medium term do appear inflationary.