Inflation exceeds estimates of analysts
Eating french fries will cost more now as the price of potatoes increased by 63% in July 2020 compared to July 2019, according to the data released on Monday by the Pakistan Bureau of Statistics.
The inflation rate, the overall increase in prices of essential goods and services, for July was 9.3% as compared to the previous years, according to the bureau. The overall inflation rate was higher than central bank’s own forecast.
The Consumer Price Index (CPI), which measures prices of a ‘basket’ of 480 common goods and services such as the cost of education, house rent, utility bills and food and beverages, is expected to range between 7% and 9% for fiscal year 2021, State Bank of Pakistan said in June.
Higher than expected inflation rate was primarily driven by the government’s decision to increase petrol price by Rs25 per liter for July. The government increased petrol price again from July 1, raising it by Rs3.86 per liter this time. The housing and utilities segment, which petrol is a part of, has 23.6% weight in the CPI. Therefore, even a small increase in this segment can push the overall inflation rate upwards.
Besides potatoes, prices of tomatoes (up 100%), pulse Moong (up 46%) and eggs (43%) increased the most in the latest month over July 2019. The inflation rate for July, first month of fiscal year 2021, remain just below double-digits and follows what ended up as the most inflationary year since 2012.
The average inflation rate for fiscal year 2020 was 10.74%, the highest annual inflation rate in the last eight years. This means that the Rs10,000 you put in your savings account last year are now worth Rs9,000 as your wallets have squeezed more than 10% since July 1, 2019. Last year, the government presented an inflationary budget geared towards meeting the prerequisites for an IMF bailout programme signed in July, 2019. Under the programme, the government raised electricity and gas tariffs, devalued its currency more than 25%, raised duties in imports, and doubled petrol tax in six months. Expensive fuel raised transportation costs, making it costly for the businesses to deliver their products or get raw material for the production process. As the cost of production went up, businesses passed the increase onto the consumers. On the other hand, untimely permission for exports of sugar and mismanagement in wheat procurement led to a full-blown wheat and sugar crisis, pushing inflation rate above 14.6% in January, the highest level in a decade.