December witnesses new wave of inflation hike

• A storm of inflation to follow due to IMF program; warns finance ministry

ISLAMABAD: A double-digit increase was witnessed in the prices of consumer items during December 2021.

Per data released by the Pakistan Bureau of Statistics (PBS) on Saturday, inflation edged up to 12.3% from 11.5% in November 2021.

Analysts had already anticipated the inflation to be double-digit, as the current CPI inflation was in line with their expected targets.

On a month-on-month basis, inflation remained “flattish”, slightly declining by 0.02% owing to a significant decline in food inflation.

According to Arif Habib Limited (AHL), the inflation for the month of December is the highest in 22 months (February 2020: 12.40%).

Speaking to media, an analyst from AHL Sana Tawfiq said that the inflation rate is in line with the market expectation.

Tawfiq said that the year-on-year increase was fueled by non-food items — household equipment. Moreover, she added, the base inflation last year was lower.

“A slight decrease of 0.02% on a month-on-month basis came on the back of an improvement in food inflation," she said.

 

 

Tawfiq elaborated that a decrease in food group month-on-month was as expected “and was reflected in the weekly sensitive price index (SPI).”

The national data-collecting agency has reported the latest inflation figures before the Monetary Policy Committee meeting this month. The meeting is expected to maintain a status quo at 9.75%.

The Wholesale Price Index (WPI), which captures prices in the wholesale market, also rose sharply by 26.2% in December compared to 9.5% in the same month a year ago.

The PBS reported that the overall inflation rate recorded an increase in both the urban and rural areas. The inflation rate in urban areas edged to 12.7% in December and rural areas surged to 11.6% over the same month of the last year.

In December last year, the inflation rate in urban areas was 7% meanwhile, in rural areas it stood at 9.5%.

The food inflation rate in villages and cities dropped to 9% and 11.7% on a yearly basis. In December 2020, food inflation for villages and cities clocked in at 13.4% and 12.6% respectively.

The non-food inflation rate was recorded at 13.4% in urban areas and 14% in rural areas compared to 3.8% and 6.1% in the same month of last year.

Core inflation — calculated by excluding food and energy items — rose by 8.3% in urban areas and by 8.9% in a rural area during the month under review, reported the national data collecting agency

The food group saw a price increase of 10.33% in December from the same month a year ago. Within the food group, prices of non-perishable food items surged by 14.18% on an annualised basis meanwhile the prices of the perishable goods were effectively reduced by 10.23% year-on-year.

The inflation rate for the housing, water, electricity, gas, and fuel group — having one-fourth weight in the basket — rose by 16.56% (year-on-year) in the last month.

Average prices for the clothing and footwear group increased by 11.24% in December. Prices related to transportation surged by 24.07% (year-on-year).

On a month-on-month basis, the price of pulse masoor skyrocketed to 8.64%, followed by an increase of 6.58% surge in pulse mash, 6.02% increase in cooking oil, over 5.27% in pulse gram, according to the PBS. The prices of fruits, gram whole, milk and fish recorded an increase of 4.81%, 4.71%, 2.83% and 1.54% in the outgoing month.

The average inflation rate for the first half of the current fiscal (July - December) year came in at 9.81%, according to the PBS.

Tawfiq predicted that in the next monetary policy, scheduled to be held on January 24, the central bank is expected to maintain a status quo.

"Going forward, inflation is expected to remain high year-on-year because of base inflation being low last year, however, it depends on three factors; electricity prices, rupee-dollar parity and international commodity prices," the analyst added.

Meanwhile, Tariq predicted that due to the measures taken by the government to reduce food inflation, month-on-month inflation will record a decrease next month.

“Overall inflation will decline after January,” she said, adding that the State Bank of Pakistan (SBP) should adopt a “wait-and-watch” strategy before taking a deciding the interest rate.

She said that clarity regarding the International Monetary Fund (IMF) loan tranche and current account balance should be monitored before the final decision.

Finance Ministry spokesman admits recent hike in inflation

Spokesperson for Ministry of Finance Muzammil Aslam,
while admitting inflation in the country, claimed that the prices of food items have decreased in November and December.

Talking to media in Karachi on Saturday, he said that the growth rate in the financial year 2021 was 4% and this year, the IT sector will export $4 billion.

The spokesperson said that inflation has not increased from November and December and prices of food items have started coming down, while chicken, flour and egg prices have also stabilized.

Muzammil Aslam said that after the IMF program, there will be a storm of inflation, adding that the IMF asked to impose 700 billion taxes but we increased the taxes by 350 billion.