If there were any doubts last month, they are all cleared this month. March’s national headline inflation at 35.4 percent is clearly the highest ever in Pakistan’s recorded history. Year-to-date headline CPI inflation at 27.2 percent is more than double from a year ago. SPI, wholesale, and urban CPI are already averaging north of 30 percent for 9MFY2023.
Month-on-month urban inflation at 3.9 percent marks the fourth time in nine months of FY23 where sequential inflation crossed 3 percent. In the six years between FYY17-FY22it only happened once, that too close to the beginning of FY23 (June 2022). For rural consumers, month-on-month inflation has crossed 3 percent four times in FY23 so far – versus just thrice in six years prior to that. This is an unchartered as territory has ever got in Pakistan’s recorded price history,both in terms of rate and breadth of price increase.
Rural food inflation is just 1 percentage point of half century – whereas urban food inflation at 45.5 percent marked the second consecutive month of 40+ percent – both comfortably highest in history.
Eight of the 12 broad CPI categories have registered the highest year-on-year increase in March 2023 –with tobacco, clothing and footwear, restaurants, and communication making fresh entries.
Core inflation on weighted average has crossed 20 percent – possibly for the first time. Energy price adjustments will continue to impact inflation, as more upward adjustments are in line with respect to monthly and quarterly fuel price adjustments, alongside incremental surcharge on electricity. Petrol prices may offer some respite, but any relief will be short-lived, given the IMF is always around and global oil prices keep finding ways to come back.
Petroleum prices continue to leadin terms of weighted contribution. With less than 3 percent weight in the CPI basket – motor fuel’s weighted contribution has stayed at an average 10 percent in FY23. Little wonder the increase in food prices appears relentless, despite various commodity cycles at different stages. Non-perishable food price increase is fast catching up with perishable – and fuel prices have a big say in that trend. Mind you, most non-perishable food prices are downward sticky.
Mini budget measures meant tobacco product prices skyrocketed across categories –registering 171 percent year-on-year increase. Previous highest increase since rebasing to FY17 was 37 percent, as cigarettes entered the top-10 of items with most weighted average contribution, despite less than 1 percent share in overall CPI basket. Wheat flour, cigarettes, and rice – all returned significantly higher contribution relative to basket weight.
Tea went dearer an unprecedented 28 percent month-on-month – highest for any item in the food basket and second only to cigarettes in overall basket. The impact on month-on-month inflation was second only to milk and fresh fruits – one with considerably higher consumption weight and the other with seasonal Ramadan impact.
And the wholesale price index (WPI) has quietly marched on with a fresh bull run – registering a seven-month high. The last two months have seen month-on-month WPI increase at highest and second highest ever – 8.2 and 4.7 percent, respectively.The removal of industrial concessional tariff for electricity and gas is likely to sow seeds of another round of WPI bull run. High WPI almost always leads to higher CPI. While the CPI may have peaked or be nearing one, it will likely stay elevated for many a month to come.
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