Inflation roundup

There is no slowdown in inflation. The headline stood at 26.6 percent in October and the month-on-month increase is at 4.7 percent – mainly due to continuous increases in food prices and reversal in the electricity charges. It’s the fifth consecutive month of headline inflation of over 20 percent. It’s the ninth consecutive month of sequential increase in food inflation. Everyone –middle class or poor - everyone is very much feeling the brunt of high inflation.

In October, the biggest culprit is the perishable food items –sub-index is up by 20 percent over the last month and the increase is 70 percent over the same month last year. The other higher increase is in electricity charges – up by 90 percent over the last month. This is the reversal of the decline of fuel price adjustment (due to the reversal of FPA over the month prior to that) – in simple words, the fuel price adjustment is normalized.

The real pain is the ninth consecutive month of increased food inflation. That is a little too much. It all started with a rise in international commodity prices and a revision of fuel prices in Pakistan that raised transportation costs and thereafter the impact of floods, now leading to seasonal increases. The trend hopefully will break and there may be a seasonal decline in winters – Dec and Jan, if not anything else go back, as it appears that Murphy law is in operation in Pakistan.

The increase in food prices is insane in numbers. Tomatoes prices in urban areas are up by 210 percent (yearly) and onions by 165 percent. Then there are nine other items where the increase is over 50 percent. That is why food price inflation is at 36 percent and the monthly increase is at 5.6 percent. Food inflation in rural Pakistan is higher than in urban. So is the headline. The rural headline inflation is at 29.5 percent.

Inflation is not just about food. The core is inching towards 20 percent as well. It's 14.9 percent for urban and 18.2 percent for rural. The trimmed core has crossed 20 percent. It all started with the energy price increase (and other commodities) and is reflected in almost every item.

Clothing and footwear prices are up by 18 percent. Health expenditure is up by 16 percent – almost 3 percent increase in the last month. Transport prices are up by a massive 51 percent – mainly due to higher petroleum prices. Electricity charges are up by 25 percent. Construction input at 35 percent and wages at 13 percent. Education at 11 percent is also in double digits. Restaurants and hotel prices are up a massive 31 percent – yet most of them are nearly full of people. The recreation and culture sub-index is over 20 percent too.

The only thing cheap (in number and metaphoric sense) is communication –phone, internet, and postal services. The yearly inflation in it is at 2 percent. And yes, on paper, the house rent index is in the single digit too – at 5 percent. It is hard to digest this number. Seeing the growth in construction costs and real estate prices, a 5 percent increase in house rents doesn’t make sense. And the simple channel check in upscale Lahore and Karachi areas on house rent increase is portraying a different picture.

One cannot blame this possible tweaking on the new finance team. This anomaly of a 5-7 percent annual increase in the house rent index is in CPI recordings for many years and is totally divorced from the rest of the inflation. Another unexplained story, for the past two years, is of wheat price recording – which is much lower than actual.

Irrespective of these misgivings, inflation is high and hurting all. The number is likely to remain over 20 percent for the next 4-6 before cooling down, and hopefully some good day, it will reach the SBP’s medium-term target of 5-7 percent.