Inflation reading clocks in at 9.2% in October

• On a monthly basis, inflation records an increase of 1.9% owing to significant changes in food, housing, transportation indices.
• Sana Tawfiq says that the market expectation is that the central bank will increase the policy rate by 75-100bps this time.
• Core inflation rises by 6.7% in urban areas and by 6.7% in rural area during October.

KARACHI: The month of October saw a new round of increased prices of consumer items as inflation crawled up to 9.2% from 9% in September, data released by the Pakistan Bureau of Statistics (PBS) showed on Monday.

On a month-on-month basis, inflation increased by 1.9% owing to significant changes in three indices — food, housing, and transportation.

Speaking to Geo.tv, an analyst from Arif Habib Limited, Sana Tawfiq, said that the inflation rate was on the higher side of the market expectation.

“An increase of 1.9% on a month-on-month basis came on the back of three sectors — food, transport, and housing," she said.

Tawfiq elaborated that the increase in the prices of perishable items in the food group, rising oil prices internationally and locally, and a surge in input costs and cement prices have impacted the three sectors. Resultantly, this impact was significantly observed in the inflation rate.

The national data collecting agency has reported the latest inflation figures ahead of the Monetary Policy Committee meeting scheduled this month. The meeting will set the new policy rate for the next two months.

The AHL analyst stated that keeping in view the current situation, the market expectation is that the central bank will increase the policy rate by 75-100 basis points this time. “Instead of a gradual increase, SBP may increase the rate extraordinarily in the next MPC meeting,” she added.

The Wholesale Price Index (WPI), which captures prices in the wholesale market, also rose sharply by 21.2% in October compared to 5.1% in the same month a year ago.

The government has set the average inflation target for the ongoing fiscal year within the range of 7-9%, however, Tawfiq stated that keeping in view the economic indicators, it is expected that the inflation will exceed the set target by the end of this year.

The PBS reported that the overall inflation rate recorded an increase in the urban area, meanwhile the inflation rate in rural slowed down. The inflation rate in urban areas edged to 9.6% in October and rural areas surged to 8.7% over the same month of the last year. In October last year, inflation rate in urban areas was 7.3% meanwhile, in rural areas it stood at 11.3%.

The food inflation rate in villages and cities dropped to 7.2% and 9.4% on a yearly basis. In October 2020, food inflation for villages and cities clocked in at 13.9% and 17.7% respectively.

Non-food inflation rate was recorded at 9.7% in urban areas and 10% in rural areas compared to 3.6% and 5.8% in the same month of last year.

Core inflation — calculated by excluding food and energy items — rose by 6.7% in urban areas and by 6.7% in rural area during the month under review, reported the national data collecting agency

The food group saw a price increase of 8.3% in October from the same month a year ago. Within the food group, prices of non-perishable food items surged by 12.26% on an annualised basis meanwhile the prices of the perishable goods were effectively reduced by 10.77%. The inflation rate for the housing, water, electricity, gas, and fuel group — having one-fourth weight in the basket — rose by 11.96% last month.

Average prices for the clothing and footwear group increased by 9.28% in October. Prices related to transportation surged by 14.41%.

On a month-on-month basis, the price of chicken skyrocketed 17.91%, followed by a 15.26% surge in vegetables, 12.17% increase in potatoes, over 7% in wheat, according to the PBS. The prices of tea, mustard oil, vegetable ghee and meat recorded an increase of 4.93%, 4.68%, 2.72% and 1.72% last month.

Meanwhile, motor fuel and electricity charges surged by 8.65% and 5.48% during the period under review.

“Going forward, FY22’s inflation reading is expected to remain closer to upper end of SBP’s target range of 7-9% range,” a report from Arif Habib Limited noted, adding that any abrupt change in tariffs, exchange rate parity and oil prices going forward, pose an upside risk to the inflation estimates.

The average inflation rate for July-October of the current fiscal year came in at 8.74%, according to the PBS.