July's CPI records 12-year low of 1.8pc
The headline Consumer Price Index (CPI) continued to maintain its level at lower side as it stand at 1.8 percent in July, which is a record level of 12-year old due to controlled inflation prices of petroleum product and food items.
According to Pakistan Bureau of Statistics (PBS), CPI inflation clocked in at a 12-year low of 1.8 percent in July 2015 compared to 3.2 percent in Jun 2015.
CPI inflation increased by 0.4% versus an increase of 0.6% in June 2015 and an increase of 1.7% in July 2014 on month-on-month basis (MoM).
However, inflation on food, which is the major component of CPI with a weight of 35%, declined by 0.3% YoY in July 2015 as against an increase of 2.4% in June 2015 despite of Ramadan. The decline in food inflation is attributed to drop in prices of perishable food items owing to improved supply situation from domestic and international markets.
PBS data stated that the perishable food prices declined by 13% YoY in July 2015 with major drop seen in prices of potatoes down by 59%, oil/ghee down by 11% and rice down by 10%.
Besides, lower food prices, transport index (weight of 7% in CPI) also reported a decline of 10% YoY in July 2015 as against 9% fall during the previous month.
Core inflation in Jul 2015 clocked in at 4.1% as compared to 4.6% in Jun 2015, showing persistent decline since February 2015. The consistent decline in core inflation also indicated that overall inflationary trend has been on the lower side recently.
Furthermore, housing, water and fuel segment with index of 29% in CPI increased by 4.4% in Jul 2015 versus 4.9% in Jun 2014. On MoM basis, index increased by 0.9% during the month led by quarterly revision in house rent index.
Real interest rates have now increased to 5.2% in Jul 2015 as against 3.8% during the previous month and 1H2015 average of 4.8%, due to lower inflation.
Analysts said that inflation in FY16 is anticipated to gradually pick up led by expected hike in energy tariff and anticipated uptick in aggregate demand. It is anticipated inflation to clock in at around 5.5-6.0% as compared to 4.5% in FY15 though federal government has also set inflation target of 6% for FY16.
SBP lately have adopted accommodative monetary policy slashing discount rate by 300bps in FY15. However, due to expected increase in inflation, SBP to keep discount rate unchanged in 2015.