Recent spike in inflation is transitory, claims SBP

The central bank says headline inflation of 14.6 percent broadly in line with projections

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ISLAMABAD: The State Bank of Pakistan (SBP) has declared the recent spike in inflationary pressure as a ‘transitory’ phenomena, saying that the headline inflation of 14.6 percent was broadly in line with projection of the central bank, reported The News

Although the recent spike in inflation had surprised many economic experts, the state bank has taken the position that they were expecting this kind of spike, cautioning that it was transitory phenomena and there was no need to change in the earlier projections.

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When contacted, high-ranking officials of the planning ministry, the finance ministry and Pakistan Bureau of Statistics (PBS) said that the recent wheat/flour crisis proved to be catalyst for increasing inflationary pressure during January 2020.

House rent, prices of perishable food items, and energy prices also pushed up headline inflation up to an historic level.  With rising headline inflation that had touched a historic peak of last 10 years, the core inflation also went up by few percentage points. 

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Top official sources who are dealing with inflationary figures told The News in background discussions that the data of food prices was collected every month and the present time was a period of peak prices of food items in the both rural and urban markets of the country.

Extreme weather conditions have damaged essential food crops, and the prices of meat have also escalated. The major problem arose when the wheat crisis hit the country, and prices escalated in the domestic market. This led to inflation, according to government officials. 

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Authorities in Islamabad, however, remain confident that inflationary pressure would start witnessing a decrease by the end of the current month (February 2020) and have expressed the hope that the headline inflation will come down significantly.

On monthly average, the inflation will hover around 12.5 percent for February 2020. The government is reportedly mulling over the option to hike gas prices this week, but it will not result in an unprecedented spike in inflationary pressure, according to The News

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In the presence of higher inflationary numbers, there are increasing apprehensions that the policy rate might further go up in the coming monetary policy that would now be made after two months, probably in March 2020.

The chief spokesman of the SBP, Abid Qamar, has said that inflation in January 2020 was pushed upwards by yet another supply-side shock to food and administered prices such as fuel. “This inflation number is broadly in line with the SBP’s inflation projections," he added.

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Indeed, he said, the January 2020 MPS noted that “recent inflation out-turns have been on the high side and there remain near-term risks to inflation primarily from food price shocks and potential increases in utility prices".

"Having said that, the current monetary policy stance is appropriate to bring inflation down to the medium-term target range of 5-7 percent over the next six to eight quarters," the SBP spokesman added.

Originally published in The News