Inflation dips to 12-year low at 1.8% in July

[Edevelop]

ISLAMABAD: The pace of increase in prices slowed down to a historic low as inflation inched up only 1.8% in July on a year-on-year basis – the lowest level in 12 years, indicating that the accommodative and expansionary monetary policy of the central bank may continue in coming months.

The July inflation was the lowest since 2003, showed data of the Pakistan Bureau of Statistics (PBS) on Monday.

The Consumer Price Index (CPI) is somehow not truly reflecting the real inflation in the country. For instance, the government slapped a Rs3 per unit electricity surcharge last month, but the data collecting agency did not include it in calculating the inflation.

The PBS takes into account only the increase in electricity tariffs, which are not going up due to falling oil prices. However, instead of passing on the benefit of price reduction to the consumers, the government has slapped new surcharges through the utility bills.

The 1.8% reading beats consumer expectations as a recent survey jointly conducted by the State Bank of Pakistan and the Institute of Business Administration showed that Pakistanis believe prices of food and energy items will go up in the next six months.

However, contrary to these expectations, prices of both food items and petroleum products fell in July, which resulted in only a 1.8% rise in the overall inflation rate.

View of central bank

Official economists and the State Bank of Pakistan do not see any major change in inflation in coming months. The government expectations are that due to a high base impact, the overall inflation will remain at around current levels for a couple of more months.

Even after that, there is no major deviation from the official target of 6% inflation for fiscal year 2015-16.

On the back of a sharp decline in inflation in the previous fiscal year, the central bank cut the key discount rate by 3%, bringing it down to the 43-year low of 7%.

The central bank has predicted a benign inflationary outlook for the current fiscal year as well. However, it has warned that an anticipated increase in energy tariffs and impact of floods on food prices may result in a slight rise in inflation.

The fuel and food-adjusted inflation also slowed down to 4.1% year-on-year in July, a reduction of half a percentage point. Independent experts give more importance to the core inflation, which excludes food and energy prices that are vulnerable to seasonal shocks.

Despite what the analysts describe as “once in decades” opportunity, the government has not fully taken advantage of the low inflation and monetary expansion. A recent report of the central bank states that productive capacity of the economy is weakening due to the low investment-to-gross domestic product ratio.

Energy shortages, lack of capital and bureaucratic snags remain the major reasons behind the declining investment in recent years.

According to the PBS, prices of perishable food items fell almost 13% year-on-year in July. Prices of non-perishable food items increased only 2.3% last month over the comparative period. Clothing and footwear prices jumped 4.8%.

Prices are decelerating in the wholesale market as well and the pace of deceleration stood at 2.9% in July – the eighth consecutive month when the Wholesale Price Index remained negative.

The Sensitive Price Indicator that covers the goods used by middle and lower middle classes also decelerated by half a percentage point in July over a year ago.

Inflation dips to 12-year low at 1.8% in July - The Express Tribune

 

[WishLivePak]

Time to stop dropping oil prices any further and use the revenue instead of taking loans.

 

[I.R.A]

The Consumer Price Index (CPI) is somehow not truly reflecting the real inflation in the country. For instance, the government slapped a Rs3 per unit electricity surcharge last month, but the data collecting agency did not include it in calculating the inflation.

True.

And government already is generating revenue from fuel prices, the reduction was compensated to some extent by an increased GST rate of nearly 29%

 

[Viper0011.]

Official economists and the State Bank of Pakistan do not see any major change in inflation in coming months.

Even after that, there is no major deviation from the official target of 6% inflation for fiscal year 2015-16.

Despite what the analysts describe as “once in decades” opportunity, the government has not fully taken advantage of the low inflation and monetary expansion.

Energy shortages, lack of capital

The bold is where the mother of all problems lie, this low inflation period is the lowest in 43 years. But the government is unable to realize the hidden capital behind it, primarily due to Power outages, now add floods, three military operations against terrorism costing billions and then, the lack of capital as the CPEC is still being built and the money hasn't really hit the bank accounts, nor have all these other projects completed yet. So there is a waiting period before all this comes together.

But its all good from an overall standpoint. Some opportunities will be missed like the Central bank states. But the beauty is that in 2-3 years (sometime in 2017), 80 - 90% electric outage issue will be resolved. Majority of the work on CPEC would've completed (Phase 1) and some results wold start to show up in financial means, through expanding transportation system inside Pakistan. A few large water dams, and canal projects would be close to completion (or phase 1 completed and operational).

May foreign institutes are also getting ready to invest into Pakistan so next two years will be a little tough, but then the country will officially embark on one of the faster growing economies as the base infrastructure to support additional business growth across the country (specially Baluchistan) would be completed. So overall, Pakistan is doing good. You can't seize on every single opportunity when you are struggling to keep your lights on for a few hours constantly.

This analysis was is in Forbes today, tells you how closely the international investors are watching Pakistan and waiting on starting to invest:

Pakistan: The Next Colombia Success Story? - Forbes

 

[WishLivePak]

The bold is where the mother of all problems lie, this low inflation period is the lowest in 43 years. But the government is unable to realize the hidden capital behind it, primarily due to Power outages, now add floods, three military operations against terrorism costing billions and then, the lack of capital as the CPEC is still being built and the money hasn't really hit the bank accounts, nor have all these other projects completed yet. So there is a waiting period before all this comes together.

But its all good from an overall standpoint. Some opportunities will be missed like the Central bank states. But the beauty is that in 2-3 years (sometime in 2017), 80 - 90% electric outage issue will be resolved. Majority of the work on CPEC would've completed (Phase 1) and some results wold start to show up in financial means, through expanding transportation system inside Pakistan. A few large water dams, and canal projects would be close to completion (or phase 1 completed and operational).

May foreign institutes are also getting ready to invest into Pakistan so next two years will be a little tough, but then the country will officially embark on one of the faster growing economies as the base infrastructure to support additional business growth across the country (specially Baluchistan) would be completed. So overall, Pakistan is doing good. You can't seize on every single opportunity when you are struggling to keep your lights on for a few hours constantly.

This analysis was is in Forbes today, tells you how closely the international investors are watching Pakistan and waiting on starting to invest:

Pakistan: The Next Colombia Success Story? - Forbes

If Imran didn't do his dharma, many projects will be completed and reaping massive benefits. We are 10 months behind.

 

[Icewolf]

If Imran didn't do his dharma, many projects will be completed and reaping massive benefits. We are 10 months behind.

Dharna abhi Baki hai!

 

[Baidar Bakht]

If Imran didn't do his dharma, many projects will be completed and reaping massive benefits. We are 10 months behind.

I am not sure if you are being sarcastic or not.

 

[Viper0011.]

I am not sure if you are being sarcastic or not.

He's absolutely right on the dime. Everything is behind by a few months due to IK's sit in and then its after side effects, including lost money, market crash, etc.

ANY project in the world, when faces risks, the completion date of that project is moved forward by the amount of days that it took a risk or issue (i.e. the sit in), to go away and its side effects to be neutralized. So in this case, the entire country is behind by months, as said above.

 

[WishLivePak]

Dharna abhi Baki hai!

No more dharna sir but not all businessmen know about politics so they'll continue to fear political instability for years to come.

We've one of best security for nuclear weapons but our political instability drags us down on score. Go out of defends.pk and see how much of an embarrassment Pakistan is. Many people say our weapons are unsafe, were a failed nation and so forth.

The only way forward is stability.

I am not sure if you are being sarcastic or not.

You have a sugar mill. You get 10% electricity. Then your shipment is due to arrive one day for 90% but the ship sinks. Now you've to wait 10 months for ship to arrive again. In those 10 months, you lost 90% of revenue, compounding.


This is a rather exaggerated example to show what I mean.