Just when you think you have reached the peak – another one stares in your eyes. Pakistan’s headline national CPI inflation for February 2023 went up 31.5 percent year-on-year. Save yourself some effort looking up historic tables. This is the highest since December 1973. Monthly inflation has been higher than February’s 31.5 percent only four times in the country’s history – all between September-December 1973. July-February period average stands at 26.2 percent – higher 2.5 times from a year ago.
Month-on-month inflation has stayed clear of 4 percent thrice in FY23 so far (July, October and February). Month-on-month jump of this magnitude with this frequency so close to each occurrence is unprecedented. And both previous times, the months that followed were mistaken for “moderating” inflation trends. Urban consumers joined their rural counterparts in food inflation – which crossed 40 percent for the first time in cities.
The increase is broad and across the broad – perishable, non-perishable, administered, unadministered, imported or local items. The currency depreciation towards the end of January had its say across the board – from imported food items to petroleum prices.It is no surprise that petroleum prices had the highest weighted impact on urban CPI – as currency impact led to a sizable upward adjustment in petrol and HSD prices.
Onions with less than 1 percent weight in national CPI –contributed significantly to both urban and rural increase – making it to the top 5 items in terms of weighted contribution to overall CPI. While onions may offer some respite given the history of perishable items, fresh milk and related products will keep food price index elevated. Milk made the single largest impact on overall February inflation – not just the food category, given its relatively sizeable weight in both urban and rural CPI baskets. Elevated transportation costs are likely to keep milk prices soaring.
Gas price increase has been worked at 62 percent by the PBS(which could be on the lower side, but more on that later), as it makes the entry in the urban top-10 contributors’ list. Another matter that the notified increase has not necessarily been collected in February bills – at least in case of SSGC. Also bear in mind that the price increase is with retrospective impact – and the impact will be higher whenever implemented. Natural gas consumers in cities can finally relate to how it feels like having your cooking and heating costs contributing significantly to inflation. Firewood has been ever-present for rural consumers as a top contributor for most times.
More price rationalization around electricity is around the corner and should be in effect from March 2023. Increased GST rate of 18 percent will have a say too. Petroleum prices have been slashed for the first fortnight, but it may not stretch beyond that – given the uptick in both international oil prices and dollar rate, of late.
All this while, wholesale price index (WPI) has also raised its head once again –having mellowed for four months. The 8.2 percent month-on-month increase in WPI matches Jun 2022 increase – which was the highest ever month-on-month increase. Electricity and petroleum subsidy were in place around this time last year, and that will have a base effect that could take headline inflation even higher from where it is.