Inflation Slows Down And Sets In At 3.8% This February

Inflation Slows Down And Sets In At 3.8% This February

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MONEY AND INFLATION

Islamabad: In response to increased food supplies, the unabating Inflation has gradually slowed down to 3.8% in February, which at the same time has also subsidized the price rise in petroleum products.

Using the statistical measure of CPI, it was configured that the headline inflation indicator further decelerated to 3.8% in February over the preceding month, according to the Pakistan Bureau of Statistics (PBS) on March 1 2018. This is apparently the second consecutive month when the CPI was spotted at relatively slow pace ever since the State Bank of Pakistan increased its key policy rate by 25 basis points two months ago.

On an aggregate, food inflation in February was recorded to be 2.2% which is relatively low than what was recorded in January at 3.7%

According to the former Finance Secretary Dr. Waqar Masood Khan the rhythm of inflation is likely to accelerate once the rupee-dollar parity is adjusted to its true value.
Apart from that any unforeseen food price shock can also result in reversal of low prices.

Market expectations were also tamed due to low interest rates, as the government’s borrowing needs were also largely met by the SBP, Khan added.

The Monetary Wheel:

The quest for further increase in the key discount rate is not at rest yet – This truly explains why commercial banks are not investing in long-term Pakistan Investment Bonds. Earlier, it recorded an increase of 6% by the Central Bank.

The PBS inflation bulletin also showed that on a year-on-year basis, the non-food non-energy inflation, also referred to as “core inflation”; used for the formulation of monetary policy remained constant in February at 5.2% – the lowest, since the past one year.

However, due to reduction in pace of inflation for the second month, the average inflation rate during the first eight months of the fiscal year, (July-February) remained at 3.84%, which was slightly lower than the level observed during the same period of the last fiscal year.

According to an economist, Dr. Ali Kemal, the pace of headline information would not substantially take a boom until the private sector credit picks up. He claimed that the money in circulation was not swelling, yet, government borrowings were adequately being injected into the real sectors of the economy.

As of February 16, the SBP reported the growth in money circulation at only 0.83% since start of the fiscal year. In the comparative period of the last fiscal year, this ratio was 3.11%, showed the central bank data.

Foreseeable Pakistan:

Over the last seven months, the federal government has been surging the prices of petroleum products. The kerosene oil prices soared by 24.1%, and petrol by an estimate of 12.2% in February almost a year ago in 2017. Henceforth, the government is shooting up petroleum products prices on major grounds of increase in crude oil prices in the international market.

Followed by this, another reason gauged behind the high prices of diesel is, the 25.5% general sales tax levied on diesel alone which is substantially higher than the standard 17% GST rate.

On an annual basis, the utmost increase in the category of food items was in betel leaves of 210% due to heavy regulatory duties that the government imposed to avert imports. Seemingly, prices of onions jumped to 45% followed by a 20% increase in prices of chicken.

 

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