Retarding inflation - a happy misconception!

July 3, 2019 (MLN): In the midst of rapidly depleting economic indicators, the lower than expected rate of inflation for June 2019 has served as a source of comfort for the people of Pakistan as yearly inflation for the month logged in at 8.9% against an expectation of around 9.8%.

However, a look at the overall CPI review document released by Pakistan Bureau of Statistics (PBS) tells us that on a yearly basis, all goods and services encountered growth in prices while on a monthly basis, all except the food group.

Food group played a principal role in containing the otherwise soaring inflation this month as the prices of perishable food items declined by 5.5% when compared to May. This was because the food prices were exceptionally highly during the month of Ramadan (May) when demand for fruits and other edibles takes a leap.

Against May 2019, the fruit prices dropped by 12%, chicken prices dropped by 5.2% while that of tomatoes declined by 9.2%.

Since it is customary for the prices of perishable food items to normalize after Ramadan, Analysts at InterMarket Securities refuse to take the slowdown in inflation as a good news.

What is more is that Ramadan fell in the month of June last year which means that the slowdown in yearly inflation rate is the result of low base effect.

“Notwithstanding present trends in food inflation, we think Jul’19 onwards, the CPI will likely jump to reflect the large increases in gas and power tariffs and initial impact of recent 7% PKR depreciation and budgetary measures,” stated InterMarket.

Moreover, Arsalan Hanif at Arif Habib expects inflation to continue its upward trajectory in upcoming months amid housing index review due in upcoming month, however, a possible decline in food  and  transport index might affect his inflation forecast, he forewarned.

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