March 30, 2022 (MLN): General consensus amongst analysts looking at the economy is that inflation is set to remain in double-digits for at least the remainder of the ongoing fiscal year. CPI inflation in February 2022 clocked in at 12.2%YoY and 1.2%MoM. The majority of the monthly uptick came on the back of the rising food prices – especially tomatoes, prices of which tripled in the month.
The situation for March looks almost similar. As per forecasts shared by analysts, the YoY CPI for the ongoing month is likely to clock in the range of 12-13%. The number could have been higher, had the government not frozen the fuel prices and announced a cap on the electricity tariffs. The real culprit is likely to be food prices, yet again.
This time around, it’s not the tomatoes but rather the chicken and edible oil prices. Prices of chicken, being the substitute meat for mutton and beef, have increased by 8%WoW ever since the cattle disease was reported in farms across the country. As consumers shun beef, the demand for chicken almost doubled in the ongoing month raising the per kilogram prices of the white meat.
Beyond chicken, edible oil (cooking oil, ghee) prices have also witnessed a significant surge over the last few months. Pakistan imports almost all of its edible oil to meet local demand. International edible oil prices have seen a surge in the last few months, reaching record-high levels mainly due to supply-chain bottlenecks. The situation has been further exacerbated by the ongoing Russia-Ukraine war which has sent the prices of almost all of the commodities to new highs as fears of a full-blown sent a wave of panic across the world.
The weekly SPI readings tell a similar tale as well. After falling by 1.37%WoW in the week ended March 17, the index rose by 1.1% in the week ending on last Thursday (March 24). Chicken and ghee prices (10% in the last two weeks) saw the most increase. Meanwhile, fresh fruits, vegetables, and clothing items also witnessed a surge.
With the summer season in full swing, the prices of textiles i.e. printed lawn have increased as well. Consumers have already been complaining about the exorbitant rates at which the lawn makers in the country unveiled their 2022 styles, a large impact of it is being seen in the weekly price increases. As per the SPI, prices of lawn have increased by 5% in the last two weeks. Meanwhile, with Eid just a month away, the prices are likely to increase further as brands tend to maximize their profits around Eid as the entire population purchases clothes to celebrate the festival with new clothes.
Much of the increase in prices of vegetables, fresh fruits, and clothing was due to the Ramadan effect. Looking at the last decade, prices of food especially fresh fruits and meat tend to witness an increase in the month leading up to Ramadan. Prices in the holy month itself have risen by an average of 1%MoM during the last 10 years. With 2022 Ramadan beginning on April 4, the analysts are predicting at least a 1% increase in April inflation over March. This will likely increase the YoY figures to a record high.
To note, the government has so far kept fuel prices unchanged in the last month or so in order to provide some relief to the masses. The government has announced to keep the prices unchanged up until the FY23 Budget. But with international crude oil prices refusing to decline, the government will have to increase the per litre prices of diesel and petrol in the near future which would essentially take the CPI readings in the north of 12.5%.
The actual monthly CPI numbers are beginning to divert away from the State Bank of Pakistan (SBP) expectations and forecasts. To note, the SBP expects FY22 inflation to remain in the range of 9-11%. However, at its current rate, the CPI will likely average above the 11% mark for FY22.
With another monetary policy due in April, all eyes are on the central bank as to whether it will change its inflation outlook and raise the policy rates to keep the prices from rising further.
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