The fears of inflation dragon bouncing back soon after the first round of currency depreciation have not materialized. At least not yet. Read it with a continuous rise in petroleum prices month after month, and the inflation number looks rather tame. The headline year-on-year CPI inflation clocked in at 4.42 percent, taking the average fiscal year inflation to 3.85 percent – virtually the same number as last year.

The biggest reprieve came from a double digit decline in perishable food items, which account for 5 percent of the basket. Perishable food items were the only category that saw a month–on-month decline, and was alone enough to make up for modest increment in all other categories, including transport.

That said, the numbers do not add up when it comes to petroleum products. Recall that the petrol and diesel prices had gone up by 5.25 and 4.42 percent on monthly basis in January. The motor fuel category in the transport sub index accounts for 3.02 percent of total CPI weight. But the reported increase in motor fuel category of just 3.26 percent over December comes as a rather unfathomable surprise. The PBS would surely know something more than the spreadsheets have to say on motor fuel related inflation. There is surely something that the authorities love to keep fishy about petroleum related numbers. The PBS and SBP LNG import number saga is not even a month old.

Then there is the quarterly revision in house rent sub index, which has the second biggest weight in the index at 22 percent. The house rents moved only 0.98 percent over the previous quarter, and just 5.43 percent on a year-on-year basis. Granted that the property market has slowed down of late, but anecdotal evidence suggests this number may still be a visible deviation from ground realities.

The CPI numbers have of late shown no signs of impact of currency depreciation and petroleum prices increase. That impact can wait. Surely the massive increase in diesel prices would eventually trickle down to the supply chain side of the perishable food chain. But for now, that does not seem to be a worry.

The real interest rates would go further in the positive territory, after the recent MPS by the State Bank of Pakistan. As BR Research had highlighted earlier, a 25 bps increase in rates can be a sign of reversal in policy, the SBP seems to have anticipated well (Read: Inflation dragon continues to sleep, published Jan 3, 2018). Even if all hell breaks loose, there are little to no chances of missing the inflation target. Even a rapid increase in petroleum prices would have it contained well within 4.5 percent on full year basis. More so, because the methodology somehow tends to show a much tamed impact.