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Pakistan’s Consumer Inflation for FY 2019-20 Rises to 10.74%

After dropping consecutively in the last four months, Pakistan’s consumer (CPI) inflation rate slightly increased to 8.59% in June from 8.20% in May 2020.

However, July-June’s (2019-20) average inflation increased to 10.74% as compared with 6.80% recorded in July-June (2018-19).

According to the Pakistan Bureau of Statistics, CPI increased by 8.6% on a year-on-year basis in June 2020 as compared to an increase of 8.2% in the previous month and 8.0% in June 2019. On a month-on-month basis, it increased by 0.8% in June 2020 as compared to an increase of 0.3% in the previous month and an increase of 0.5% in June 2019.

Prices of eggs, tomatoes, wheat, flour, fresh vegetables, and chicken increased during June.

The Urban CPI with the base year (2015-16) recorded an increase of 10.17% while Rural CPI with the base year (2015-16) recorded an increase of 11.62%. CPI with the old base year (2007-08) recorded an increase of 11.12%

A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities told ProPakistani,

Inflation is going to recede after a few months. It has become a non-event right now as SBP has already started looking one year ahead and brought a discount rate to its minima.

State Bank of Pakistan in its recent statement said that there is moderation in overall price pressures in June, despite price increases in some food items, notably wheat. The FY 2020/21 budget is also expected to be neutral for inflation as the freeze on government salaries, absence of new taxes, and lower production cost from reduced import duties should offset the decline in subsidies in some sectors, it added.

While supply shocks could create some volatility in inflation, these are likely to be transitory given weak domestic demand, such that monetary policy should generally look past them.

Given the absence of demand-side pressures, average inflation could fall below the previously announced range of 7-9 percent for the next fiscal year.

With the current reduction of the policy rate to 7 percent, real rates on a forward-looking basis (defined as the policy rate less expected inflation) will be kept close to zero, which is appropriate under the current circumstances, said the State Bank.

CPI inflation urban increased by 7.6% on a year-on-year basis in June 2020 as compared to an increase of 7.3% in the previous month and 8.1% in June 2019. On a month-on-month basis, it increased by 0.7% in June 2020 as compared to an increase of 0.3% in the previous month and an increase of 0.3% in June 2019.

CPI inflation Rural increased by 10.0% on a year-on-year basis in June 2020 as compared to an increase of 9.7% in the previous month and 7.9% in June 2019. On a month-on-month basis, it increased by 1.0% in June 2020 as compared to an increase of 0.3% in the previous month and an increase of 0.7% in June 2019.

The CPI on the new base year (2015-16) comprises urban CPI and Rural CPI. Urban CPI covers 35 cities and 356 consumer items. The Rural CPI covers 27 rural centers and 244 consumer items. In the new base year (2015-16) National CPI for 12 major groups is also computed by taking a weighted average of Urban CPI and Rural CPI.

Top few commodities which varied from previous month i.e. May 2020 are given below:

Urban

Increased: Eggs (21.71%), Tomatoes (13.09%), Wheat flour (11.92%), Wheat (10.83%), Condiments and Spices (5.44%), Fresh vegetables (4.05%), Potatoes (2%), Cotton cloth (1.76%), and Chicken (1.54%)

Decreased: Onions (17.07%), Motor fuel (7.29%), Pulse gram (5.84%), Liquified Hydrocarbons (5.46%), Fresh fruits (4.36%), Besan (4.18%), Pulse masoor (3.57%), Gur (3.08%), Pulse mash (2.98%), Pulse moong (2.63%) Gram whole (1.06%) and Construction input items (0.35%)

Rural

Increased: Eggs (13.15%), Tomatoes (12.31%), Wheat Flour (10.43%), Wheat (9.61%), Potatoes (7.34%), Chicken (4.13%), Pulse Mash (3.07%), Cotton Cloth (2.7%), Gur (2.27%), Milk fresh (2.04%), and Rice (1.63%).

Decreased: Onions (25.4%), Motor Fuels (7.62%), Liquified Hydrocarbons (6.92%) and Fresh fruits (5.99%), Pulse Gram (3.57%), Besan (2.56%), Construction Input Items (1.74%), Pulse Masoor (1.62%), Gram Whole (1.41%) and Fresh Vegetables (1.27%).

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