An opposition that was supposed to be hiding in the slumbers or just fighting court cases for their respective leaders under normal circumstances is growing stronger by the day. Economy has been made the focal point. Not that the economy has not seen worse times. But try explaining improved current account to masses or politicians. What has got them going is one word: inflation.

And inflation it was, that was at the heart of the recently issued monetary policy statement. Not all of inflation expectations are misplaced either, as the fiscal deficit has mounted and currency has depreciated, both of which carry significant upside in the days to come. The SBP though, in an effort to justify the 150 bps increase, used inflation once too many in the statement.

“..to address underlying inflationary pressures from (i) higher recent month-on-month headline and core inflation outturns;…. and (iv) potential adjustments in utility tariffs,” reads the MPS. Now that is counting it twice, as surely, any adjustments in utility tariffs is going to be reflected in the CPI numbers.

All sorts of numbers are doing rounds as regards gas price increase come July 2019, as Ogra has recommended a fairly significant increase in prescribed prices. Now if Ogra’s prescription is to be the final word, as per, one of the supposed IMF conditions, expect consumer gas prices to go considerably higher. Unless, the government keeps the overall recommendation intact, and passes the burden to users in non-domestic categories.

Recall that, gas prices had gone up to as high as 143 percent for the highest consumer slab in the last revision – which resulted in the infamous 102 percent increase computed by the PBS in its CPI calculations – later (still incorrectly) revised down to 85 percent. The impact of revised gas prices on overall inflation is as high as house rent index, which has a weight of 21.8 percent as against 1.5 for gas.

Similarly, impact of electricity tariffs was computed wrongly, based on the same methodology of using simple averages across price slabs. Luckily, power tariffs did not increase by much, and the deviation from actual impact was not significant. Oddly enough, the government can actually put more consumers from lower slabs under burden in both power and gas tariffs – and that can still reflect lower inflation impact, if based on current computation methodology.

The word is that a fresh CPI basket is all set to be rolled out come July 2019 – pending ECC approval. Time to suggest has long passed, one can only hope the revised CPI goes beyond just rebasing, and adding and removing of items from the basket. Inflation remains critical to SBP’s monetary policy decisions – and the outcome of a policy decision can go either way in tens of billions of rupees. One hopes the new CPI sees possibilities beyond simple averages. If not, decisions of such magnitude will continue to be based on a number arising from a deeply flawed methodology.