Pakistan inflation reaches five year high

Prime Minister of Pakistan Imran Khan
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    Pratibha bissht

    Pakistan Inflation is at five year high of 9.41% in March. Pakistan’s top economist said it would throw four million more people into poverty and will leave one million more people without jobs this year.
    The Pakistan Bureau of Statistics (PBS) reported that the pace of increase in prices of goods and services surged to 9.41% in March over a year ago. It was the highest level since April 2014 when the Consumer Price Index based inflation indicator had been recorded at 9.2%.
    Average inflation in the first nine months (July-March) of the current fiscal year also rose to 6.8%. The average inflation is above the government’s annual target but is close to the range given by the central bank.
    After 13 months of continuous spike, the core inflation decelerated from 8.8% to 8.5% in March. The core inflation is the target rate of the central bank and 0.3% deceleration on one month suggests that there were also other considerations before the SBP for increasing the discount rate by 50 basis points.
    After the recent decision, the central bank has cumulatively increased the interest rate by 5% since January last year, aimed at curtailing aggregate demand in the economy.
    Pakistan’s Yearly Inflation rate in March 2019 was 9.41 percent compared to 8.21 percent in February 2018 and 3.25 percent in March 2018. On a monthly basis, CPI increased by 1.42 percent in March compared to 0.64 percent in February.
    The July- March average inflation is 6.78 percent compared to 3.78 percent from the corresponding period last year.
    The Yearly inflation figures were higher than market Expectation of Inflation for March which was between 9.12% and 8.60% with the average estimate of 8.91% while the expectation for Monthly change was between 1.15 % and 0.70% with the average estimate at 0.96%.
    Core inflation, measured by 20% weighted trimmed mean CPI (Core Trimmed) increased by 7.9% on (YoY) basis in March 2019 as compared to 7.7% in the previous month and by 4.1% in March 2018. On (MoM) basis, it increased by 0.4% in March 2019 as compared to an increase of 0.2% in the previous month and an increase of 0.2% in corresponding month of last year (March 2018).
    According to Pakistan Bureau of Statistics (PBS). However, the inflation has increased to 9.41 percent in March this year as a result of the economic policies of the government. The annual inflation rate is the highest since April 2014, when it had hit 9.12 percent. On month on month basis, inflation increased by 1.4 percent in March 2019 as compared to an increase of 0.6 percent in the previous month.
    Other reason behind soaring inflation is the massive government’s borrowing from central bank to meet its expenditures. The State Bank of Pakistan (SBP) had recently increased the interest rate by 50 basis points to 10.75 percent to control the pace of increasing inflation rate.
    “The pressures on headline inflation are explained by adjustments in the administered prices of electricity and gas, significant increase in perishable food prices, and the continued unfolding impact of exchange rate depreciation,” the SBP noted in its monetary policy. Further, rising input costs on the back of higher energy prices and the lagged impact of exchange rate depreciation are likely to maintain upward pressure on inflation despite a moderation in aggregate demand due to a proactive monetary management. As a result, headline CPI inflation is projected to fall in the range of 6.5 to 7.5 percent for FY19, according to the SBP.
    The average inflation rate during the period July – February also rose by 6.79 percent as compared to the same period of last year.
    Meanwhile, during the month of March, 2019 over March, 2018, the Year on Year increase in the Trimmed Core Inflation was observed at 7.9% whereas it was 4.1% during March, 2018 over March, 2017.
    Pakistan’s annual inflation reached more than four year high of 8.2% for February as lagged impact of tenuous rupee finally hit the imports dependent economy by lifting up prices of commodities.
    The central bank has been highlighting the lagged impact of rupee devaluation on inflation numbers in its periodical reports.
    Rupee lost more than 26% against the dollar since December 2016.
    On a month-on-month basis, CPI inched up 0.64% in February, the PBS data said.
    Analysts said rupee devaluation as well as increase in prices of perishable items were the main reasons behind rise in inflation.
    “Another key factor is low-base effect. Annual inflation has so far been much above the government’s annual target of six percent as well as crossed the range of 6.5% to 7.5% given by the State Bank of Pakistan, which raised its key policy rate by cumulative 450 basis points to 10.25% since January last year.

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