July 2, 2021 (MLN): The last month of FY21 witnessed a notable jump in consumer product prices by 9.7% YoY- struggled to remain close to the single digit as compared to an increase of 10.9% in May’21.
However, on the sequential basis, CPI inflation went down by 0.21% against the surge of 0.1% in May’21 mainly due to the receding food prices. The decline in June’s inflation was more pronounced in Urban areas of Pakistan where the headline inflation slipped by 0.4% MoM compared to Rural inflation which posted a drop of only 0.1% MoM.
This takes average inflation to 8.9%YoY during entire FY21 compared to 8.3% in 11MFY21 while Urban and Rural CPI during FY21 clocked in at 7.6% YoY and 10% YoY respectively, as per data released by Pakistan Bureau of Statistics (PBS).
Due to the relaxation in Covid-19 restrictions, economy has joined back the track of normalcy which has rightly reflected through the smooth supply of food items during the month under review. The overall situation supported the food prices to come down on a MoM basis. During June’21, the food and non-alcoholic group posted a decline of 1.77% compared to the increase of 0.68% in the month of May.
The monthly statement by PBS noted that on MoM basis, the prices of Chicken, Fruits, Pulse, Moong, Fish, Pulse gram and Pulse mash in Urban centers witnessed the notable decline in June’21 by 36.86%, 20.07%, 6.1%, 1.91% and 1.82% and 1.24%, respectively.
Meanwhile, the main food commodities, which helped to subdue the inflation in rural areas by registering a decline, include Chicken (32.50%), Fruits (12.58%), Pulse Moong (7.92%), Pulse Mash (2.12%), Potatoes (1.16%) and Sugar (0.93%) compared to the previous month.
On the other hand, the price of Tomatoes, Onions, Eggs, Vegetables, Meat, Wheat, and Vegetable ghee surged in Urban areas by 28.94%, 14.97%, 4.37%, 3.11%, 2.85% 1.52%, and 1.36%, respectively during the month under review. While the rural areas witnessed the escalation in the prices of Tomatoes by 26.76%, Vegetables by 9.09%, Eggs by 4.27%, and Wheat by3.11% against the prices in May’21.
The urban centers registered hike in the prices of Non-food items i.e, Liquefied Hydrocarbons, Motor fuel, Personal Effects, and Construction items by 26.26% MoM, 3.84% MoM, 2.47% MoM, and 0.73MoM% during the last month of FY21. Whereas, the transport services in urban areas witnessed a reduction in prices by 0.58% MoM compared to the prices in May’21.
In villages and small towns, the prices of non-food items climbed up during June’21 on the monthly basis include Motor Fuels (38.71%), Water Supply (36.99%), Liquefied Hydrocarbons (27.27%), Electricity Charges (21.13%), Hosiery (16.68%), Clinic Fee (16.25%), Plastic Products (13.32%) and Woolen Cloth (13.2%) against the reported figures in the previous month.
On the yearly basis, Food, Transportation, Clothing and Footwear, Furnishing, Health, Housing, , and Restaurants indices have surged respectively by 10.48%YoY, 17.4%YoY, 9.95%YoY, 9.77%YoY,8.43%YoY, 9.1%YoY and 8.76%YoY in June’21 compared to June’20 indices.
At the same time, core inflation- measured by Non-Food Non-Energy (NFNE) in cities climbed up by 6.7% YoY in June, 2021 as compared to an increase of 6.8% in the previous month and 6.5% in June, 2020. On monthly basis, urban areas observed a slight increment in the prices by 0.3% in June, 2021 as compared to reported increase of 0.2% in previous month, and an upsurge of 0.4% in corresponding month of last year i.e. June, 2020, data by PBS revealed.
Rural core inflation jumped by 7.3% YoY in the last month of FY21 as compared to an increase of 7.6% in the previous month and 8.8% in June, 2020. While on the sequential basis, the prices of NFNE inched up by 0.4% in June, 2021 as compared to an increase of 0.3% in previous month, and a surge of 0.7% in corresponding month of last year i.e. June, 2020.
The Wholesale Price Index (WPI) swelled by 20.9% YoY in June’21. The surging gap between CPI and WPI created an alarming situation which indicates that cost push inflation will likely to hit FY22.
The uptick in international oil prices which pushed the government to raise retail prices of petrol and diesel this month will likely create pressure on the CPI in the coming months.
With regard to this, Amreen Soorani, Analyst at JS Global stated, “Rising oil prices and the monumental Petroleum Development Levy target for FY22 could push up domestic fuel prices and eventually reflect in the CPI in FY22.”
Moreover, printing of currency could further exacerbate the situation. With the SBP keeping the medium-term inflation targets intact, one cannot rule out the possibility of a monetary policy hike in the coming months, she added.
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