The record high CPI reading in March 2023 was a foregone conclusion back in August and September 2022 – when the Wholesale Price Index (WPI) had hit an all-time high(see: WPI shatters all records, published September 7, 2022). Having cooled down to an average 28 percent in three months from November 2022 to January 2023 – WPI is inching towards another peak – reminiscent of the one seen towards the end of 2022.
This time around, the transmission mechanism from WPI to CPI may be a tad different from the previous peak. Food and beverages lead the way with the highest increase among all categories and highest ever for food category at 43 percent. Astonishingly, fourteen of the 22 items in the WPI food and beverages basket returned the highest ever year-on-year increase in March 2023.
Some of the price increase had been building up evident from increase in agriculture produce prices in the months leading up to March 2023, such as wheat, other cereals, fruits and vegetables, dry fruits and raw milk. Government’s administrative measures in a bid to boost tax revenues meant wholesale prices of dairy, beverage and tobacco subcategories appreciated faster than the usual pace of transmission from one category to another.
Transportable goods’ price increase has once again started to rise following petroleum price revision – but stays a fraction of the highs seen earlier last year. Recent increase in global crude oil prices following Opec’s shock production cut puts Pakistan in a tight spot as regards upcoming furl price changes. The impact of diesel and petrol prices onmost transportable goods usually comes with a short lag of 2-3 months in CPI. The recent increase in non-fuel non-energy core inflation is largely driven as the second-round impact of petroleum price hike.
The single largest increase was reported in lighting equipment, which has been highlighting WPI metal category since November 2022 having undergone a massive 126 percent month-on-month increase. Steel, fittings, pipes, air conditioners, automobiles, bikes – have all registered highest month-on-month increases in the last two months. Some of the impact on CPI is immediate, while other may take a while before hitting store prices.
Textile and apparel category tells what is in store for CPI clothing category in the months to come. Cotton, silk, and other fabrics have all registered year-on-year increase in excess of 50 percent – comfortably the highest ever. The increase is abrupt too, especially in the case of cotton and other fabrics, not building up gradually over the past months. Whether this is the impact of suppl side bottlenecks faced by the textile industry, or an immediate result of a substantial increase in energy costs as concessional tariff schemes for textiles ended last month – is anyone’s guess. What is sure though is the impact on CPI which will likely be spread beyond the 33 percent increase in cotton cloth category reported for March 2023.
It won’t be long before you will see chest thumping on CPI inflation coming down. Only that it will have come down from highs never seen before, and even the journey south promises to be a very slow one. While the peak may well be behind us, the pain will last much longer.
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