Having peaked in May 2023 at 38 percent – national headline inflation has since followed a predictable path. One way of seeing this is that August 2023 numbers at 27.4 percent are the lowest since December 2022. Another way of seeing this is that August inflation is coming off a very high base of 27.3 percent from last year – which is unprecedented and tells you the misery is unmatched. August marked the 15th straight month of year-on-year headline inflation staying north of 20 percent – and there are no signs of that ending anytime soon.

Core inflation continues to be a concern – staying well over 20 percent. The trend in rural core inflation is more worrisome as August 2023 saw rural core inflation at 26 percent – highest ever. Food inflation continues to headline national inflation, with a weighted contribution of 51 percent, for urban and rural combined. Other than perishable food, all sub-groups underwent month-on-month increase – which could just be signaling the start of second-round effect.

With Brent crude reaching new highs and the rupee losing appreciable against the greenback – one fears the second round this time around could throw spanner in the works. Already cornered in a tight spot under the IMF eyes, Pakistan has no option but to entirely pass on the petroleum prices in addition to maximizing Petroleum Levy – the transportable goods index of the Wholesale Price Index (WPI) is all set to lead another bull rally.Mind you, an increase in HSD prices has a much bigger second round impact on all prices – and HSD at retail level has reached new highs.

And then comes electricity. You see around the country – and you are entitled to believe power tariffs are breaking the consumers’ back. But if you only happen to see the PBS document – you would wonder what all the fuss is about. The PBS has electricity charges going down 8.2 percent year-on-year. This is largely due to the extraordinary upward FCA last year, which was later reversed. That is where you will see September electricity charges showing an exorbitant increase year-on-year.

Even then, the PBS average domestic electricity tariffs for all five consumption quintiles comes at Rs25/unit. This is working back from the PBS calculation at the time of rebasing in 2019. This just does not sound right. Mind you, PBS electricity prices are inclusive of all taxes, duties, and surcharges and there is no way the average for domestic consumption across quintiles comes as low as Rs25/unit today – especially after the recent rounds of adjustments and new surcharges levied across the board.

A keen eye will have to be kept on what happens in the wholesale space – and the HSD price increase tells WPI is going to lead the next CPI rally. With industrial and commercial power tariffs at historic highs, adjustment in gas prices just around the corner, crude oil at the highest in a year, the further likely deterioration in interbank rates due to the strict IMF conditions – there is no stopping the second round here. While the peak may well be behind us already, any respite, at least in the first half of FY24 seems highly unlikely.