SBP cuts in­ter­est ....

Pakistan Observer - - IN­TER­NA­TIONAL -

jected to main­tain up­ward tra­jec­tory.

As ex­pected, head­line CPI in­fla­tion sus­tained its ris­ing trend for the sev­enth con­sec­u­tive month and on YoY ba­sis rose to 4.2 per­cent in April 2016 from the low of 1.3 per­cent in Septem­ber 2015.

In ad­di­tion to the sea­sonal im­pact of per­ish­able food items and ser­vices, this in­crease owes to fur­ther wan­ing of the base ef­fect and sec­ond round im­pact of de­cline in oil prices.

Sim­i­larly, core in­fla­tion mea­sures have broadly fol­lowed a ris­ing trend in this fis­cal year in­di­cat­ing buildup of un­der­ly­ing in­fla­tion­ary ten­den­cies. De­spite these trends and de­vel­op­ments, the in­fla­tion out­look for FY16 is low. How­ever, go­ing into FY17 in­fla­tion is likely to at­tain a higher plateau. Ma­jor sources that would de­ter­mine this path are as fol­lows:

First, rel­a­tively faster pickup in de­mand com­pared to its grad­u­ally im­prov­ing sup­ply dy­nam­ics could lead in­fla­tion on a higher side. Sec­ond, ris­ing global oil price along with mod­est re­cov­ery in non-en­ergy com­mod­ity prices will pass on to the do­mes­tic con­sumer prices.

Third, some risks, such as im­po­si­tion of new tax­a­tion mea­sures and in­crease in elec­tric­ity and gas tar­iffs, if re­al­ized would put up­ward pres­sure on CPI in­fla­tion.

Ex­pan­sion in in­dus­trial ac­tiv­i­ties and ser­vices sec­tor would sal­vage some of the lost mo­men­tum to GDP growth due to the losses from cot­ton and rice crops. Re­cov­ery in Large-scale Man­u­fac­tur­ing, which grew by 4.7 per­cent dur­ing Jul-Mar FY16 com­pared to 2.8 per­cent in Jul-Mar FY15, is ex­pected to con­tinue fur­ther on ac­count of im­prov­ing en­ergy and se­cu­rity con­di­tions.

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