EDITORIAL: Prime Minister Imran Khan in a tweet revealed that the Consumer Price Index (CPI) rose by 5.7 percent in January 2021 against 8 percent in December 2020 – a truly remarkable achievement, while core inflation – non-food, and non-energy - remained at 5.4 percent (though data uploaded on the Pakistan Bureau of Statistics website indicates core inflation in December 2020 was 5.6 percent). Two elements of the calculation require clarification. First, all component items in the CPI registered a decline in their indices in January 2021 compared to December 2020 other than food and non-alcoholic beverages with a significant weightage of 30.42 urban and 40.87 rural. However, within this group, the indices of non-perishable items, with a weightage of 25.97 in urban and 35.08 in rural, registered a raise in both rural and urban centres. And it was a massive decline in the prices of perishables with only 4.46 weightage in urban - from 158.5 December 2020 to 128.98 in January 2021 - and weightage of 5.79 in rural declining from 164.99 in December 2020 to 129.31 in January 2021 - that inexplicably accounted for CPI plummeting by a whopping 2.3 percentage points in January 2021 compared to December 2020. Perishables are mostly related to supply and demand cycles and respond but little to government policy.
Secondly, food items (perishable and non-perishable) declined in January 2021 in spite of the fact that the Sensitive Price Index (SPI), weekly monitor of 51 mainly food items (though electricity charges, high speed diesel and petrol super are also included), registered: (i) a raise of 0.06 percent in the week ending 7 January; (ii) a decline of 0.22 percent in week ending 14 January 2021 (on the back of a reduction in the price of eggs, tomato, potato and in non-food items electricity and LPG), (iii) a rise of 0.32 percent in the week ending 21 January 2021 and (iv) a rise of 0.58 percent in the week ending 28 January 2021. The Pakistan Bureau of Statistics (PBS) data reveals that there was a cumulative decrease in the CPI monthly food and non-alcoholic calculation with rural index declining from 142.65 in December 2020 to 142.23 in January 2021 and urban from 145.86 to 141.87. Unless the government can prove that the registered decline in food prices was largely during the last three days of January 2021 this decline does not match the SPI.
Housing, water, electricity, gas and fuels, with a weightage of 27.03 percent in urban CPI, registered a rise in January 2021 - from 135.34 in December 2020 to 137.532 in January 2021 and in rural CPI from 132.24 December 2020 to 135.5 in January 2021 with a lower weightage of 18.49. Post- pandemic there is evidence that rents have not been raised while the government’s reliance on electricity, fuel and petrol as a source of revenue has risen dramatically. In the case of petroleum levy alone the government generated 260 billion rupees last year against the budgeted 216 billion rupees to a whopping 450 billion rupees budgeted this year comprising of about 8 percent of total revenue collection target in 2020-21. The impact on inflation of this reliance is however subdued as the combined weightage of petroleum and electricity is less than 6 percent.
Undoubtedly, the dramatic decline in the CPI must be a source of satisfaction for the Prime Minister; however, he needs to sell the narrative of a decline to the general public and reports indicate that he has not been successful in doing so. Those members of the public who are more aware of data manipulation of those indicators with a direct bearing on the popularity of the government, particularly inflation and unemployment, are likely to challenge data integrity especially as Dr Hafeez Sheikh the federal finance minister and Razzak Dawood the advisor to the prime minister on commerce have already expressed their concerns over data integrity. The general public in contrast relies almost exclusively on what it can purchase each week with a given income and if the basket of goods is less than the week before a reduction in CPI is unlikely to convince anyone that things are improving. Inflation is not an indicator of acceptance of the government’s narrative or optics but that of reality as evident from how much each rupee can buy.
Copyright Business Recorder, 2021