The inflation story has continued to build. The number for September 2018 clocked in at 5.12 percent. This may look like a respite when compared to 5.8 percent in the previous two months – but only just. The average CPI for 1QFY19 has stayed well clear of 5 percent at 5.6 percent, way higher than 3.39 percent in 1QFY18. And the impact of some tough decisions already taken, and a few coming up, is not even reflected in these numbers, which goes on to tell this average may only increase as the fiscal year moves on.

The headline inflation in the same period last year was 3.9 percent. Much dearer transport and education sub sectors, both having increased in double digits, ensured year-on-year inflation north of 5 percent. International oil prices have averaged 40 percent higher than the same period last year.

The subsequent rise in transport prices was seen coming. If anything, the increase in transport rates has been kept in check, to appease the masses, as the government for the second month running has decided to absorb the impact. The currency depreciation also seems to be in play –but worse still; the real impact of both transport and currency related prices hikes – usually comes with a lag and may well be represented in the coming months.

The real deal is the continuous rise in NFNE core inflation – which, for the sixth month running was recorded north of 7 percent. The core inflation for September 2018 at 8 percent is a 51-month high, averaging 7.8 percent in 1QFY19, considerably higher than 5.5 percent in the same period last year. Trimmed core inflation is also nearing 6 percent, up from 4.1 percent in the same period last year.

The wholesale price index has also averaged in double digits in 1QFY19 – it was a mere 1 percent in 1QFY18. These are clear signs of things to come. On month-on-month basis, there was a decline of 0.06 percent in September over August, single-handedly due to massive reprieve in perishable food prices. The government has decided against increasing petroleum prices in October, which would offer a breather to the month-on-month inflation.

But, the impact of not passing it on will show with a lag – as it will create more pressure on the fiscal side. Plus, the impact of CNG related transport prices is yet to be shown in the CPI. The increase in electricity prices cannot be held back forever either and that could provide the telling blow. Even without a change in base tariff, the fuel cost component is all set to go up, with 40 percent higher gas cost for power generation.

The monetary policy decision last week saw the sings of things coming and raised the rate by 100 bps. Time will tell if that would do for another two rounds – or will the things heat up quickly for the SBP to be looking at another round of tightening. All eyes on oil, and a few on the government’s guts to take some politically tough calls.