The CPI for November clocked in at 6.5 percent. Quite expectedly too, as the last month’s gas price revision of 85 percent, even after the rationalization exercise, has upped the ante. The single largest contributor was the housing, electricity, and fuel sub-index that contributed over a third to the overall yearly inflation.

The price increase of near 20 percent year-on-year in petroleum products, owing largely to international oil prices and rupee depreciation, also contributed significantly. The non-perishable food items saw an increase of near 6 percent year-on-year, which is a worrying sign; given Pakistan’s food prices are already higher than international prices. The strain on transportation costs seems to impact the supply chain.

The perishable food items witnessed a sizeable decrease, on the other hand, almost nullifying the impact of increase in non-perishable food items. A double digit increase in the price of chicken and egg on monthly basis goes on to show the visionaries that are manning he poultry affairs across the country. Even before the PM made the chicken and egg, a national issue, the prices went high. The PM would not surely like it.

All else is literally footnotes – as the next big thing would be noticed in the next round of quarterly revision of heavyweight house rent index, and the long pending notification of electricity price increase. And this is where it can get messy again – just like the gas price revision episode. Much has been said and written on the aforementioned issues in this space. No one expects the PBS to alter the methodology right now – especially when the base and consumption basket revision is around the corner.

The international oil prices may well have eased a bit – but year-on-year increase is still going to be on the higher side, given the low base of last year. Even if oil stays at current low rates, the government is expected to rightly use the opportunity to beef up the tax kitty. The rupee depreciation has not helped either – and would not make it any easier.

The inflation computation for electricity tariff would yield an average increase of no more than 5-7 percent year-on-year. With a consumption weight of 4.4 percent, the overall impact would not be in excess of 0.3-0.35 in percentage points. This is unless of course, the PBS has something else up its sleeves. But the very fact that the electricity tariff proposed revisions are not very high in magnitude, and no new slabs have been added – any distortion would be of limited impact.

The CPI has so far averaged 6 percent during Jul-Nov. With more increase expected on account of petroleum and electricity – it could well average around 7 percent in the second half of the year. Even at 6.5-7 percent inflation, there is ample cushion on account of real interest rates. And the last hawkish revision of 150 bps in the monetary policy may well be the last, in the short to near term. Unless, the IMF thinks otherwise.