PRICES of food items have started rising in the wake of a recent fall in the rupee’s value, though the price hike has somewhat remained subdued as the depreciation is not accompanied by supply constraints.
However, a sharper rise has been noticed in prices of imported food items. From tea, coffee, milk powder, chocolates and cheese to pulses, spices and pickles, a large number of imported food items have become costlier by five to 10 per cent, wholesale traders at Jodia Bazaar say.
Locally produced foodstuff has also depicted a rising trend in retail markets after the rupee lost about 5pc value against the US dollar in the second week of December, according to some media reports based on market surveys.
Some spike in food inflation can be well expected, especially if political instability affects supplies in any way
According to the Pakistan Bureau of Statistics, average week-on-week increase in prices of 53 essential items was recorded at 0.2pc during the week the rupee lost its value.
The main consumer inflation is also expected to increase, reflecting the ongoing rising trend in the pries of consumer items, but that will be confirmed in January.
“With the increase in the landed cost of crude palm oil and soya bean oil — used in the local edible oil manufacturing — our cost of raw material has also increased from 5-10pc,” says chief financial officer of a leading cooking oil and ghee mill.
“Our January contracts for both palm oil and soya bean oil would become even more costly because of a weaker rupee,” he says.
Moreover, the third consecutive lifting of the US interest rate (on Dec 12) boosted the dollar’s value in Asian markets, and palm and soya bean oil prices in the region also rebounded, he added: “Prices of our products have been intact so far, but we may have to increase them in January.”
Citing similar reasons, an official of a tea blending company also hinted at a price hike in January, saying that tea prices in Bangladesh and Sri Lanka have already gone up after the US central bank lifted interest rates.
“Besides, if you take into account the fact that a cheaper rupee would impact on our landed costs, not just to the extent of exchange-rate adjustment but also on freight charges, international insurance and shipping and freight forwarding fee, you will appreciate that 5pc depreciation would have no less than 10pc impact on the landed cost of edible oils, tea and many other items.”
Some traders at Jodia Bazaar say a fuller impact on commodities would be felt after a time lag.
“We have to make payments at the rate on the day imported products land in the country. Landed costs have increased automatically (after the rupee’s decline), but we cannot pass on the hike to retailers with immediate effect,” according to Anis Majeed, a leading importer of pulses.
Shopkeepers at semi-wholesale markets across Karachi have, however, already raised prices of moong, maash, masoor pulses as well as chickpeas, black gram, gram flour, etc by 10pc and even more, retailers claim.
Since supply of main food crops — ie wheat, rice, sugar and maize — has been sufficient and their domestic prices are already higher than in the international markets and food processing industries are doing well, commodity analysts don’t see any big build-up in food inflation on the whole.
Moreover, prices of milk and dairy products may also remain somewhat stable as milk production remains high in winter and processing companies normally increase prices in summer when demand peaks.
However, there are other factors in play as well, such as unchecked profiteering, particularly by retailers, and inflationary expectations.
So, some spike in food inflation can be well expected, more so, if political instability in the country affects supplies in any way.
“Since the current rupee depreciation came in quite expectedly and since businesses had factored it in after the July 5 episode, commodities market showed a relative calm,” says Muhammad Irfan, a leading trader at Jodia Bazaar.
On July 5, the central bank let the rupee fall but the then finance minister, Ishaq Dar, compelled it to reverse the move through intervention in the market.
“Nowadays, two or more consecutive fortnightly increases in petroleum prices have greater impact on commodity prices than anything else,” Mr Irfan said.
That is understandable given the fact that the transportation cost is a permanent factor in the pricing of commodities, and it goes up the moment the government announces a fuel price hike.
“Years of rupee stability, though artificial, have made many traders forget about what the exchange rate is and how it affects commodity prices,” he half-jokingly said.
Pakistan’s food imports and output of local food-processing companies have been growing steadily for some years, as higher GDP growth and increase in income levels are keeping demand strong.
In the previous fiscal year, the country spent about $6.14 billion on food imports, a year-on-year rise of 14pc.
Main food imports of Pakistan include palm oil, soya bean oil, milk cream and milk food, pulses, tea and coffee, dry fruits, nuts and spices.
It has yet to be seen whether the imposition of higher regulatory duties on more than 100 food items in August this year and the recent rupee depreciation would help reduce these imports.
Between July and October this year (after the imposition of regulatory duty, but before the rupee weakened), food imports rose 20pc year-on-year to $2.2bn, according to the Pakistan Bureau of Statistics.
courtesy in Dawn, The Business and Finance Weekly, December 25th, 2017