Food price spike pushes January 2020 inflation to nine-year high

KARACHI: Inflation jumped to 14.6 percent in January 2020, its highest in more than nine years, from 12.6 percent in December 2019, reflecting soaring prices for basic food items after the government, under an IMF bailout program, failed to maintain an efficient food supply chain, official statistics showed on Saturday.

Headline inflation was 5.6 percent in January 2019 and on sequential basis, inflation increased by 2.0 percent in January taking seven-month inflation to 11.6 percent, data from the Pakistan Bureau of Statistics (PBS) showed.

Consumer prices rose at their fastest pace since December 2010 when they clocked at 15.46 percent.

The CPI inflation for urban consumers increased 13.4 percent on year-on-year basis in January 2020, as compared to an increase of 12.0 percent in the previous month and 6.2 percent in January 2019. On month-on-month basis, it surged 1.7 percent in January 2020 as compared to a decrease of 0.4 percent in the previous month and increase of 0.4 percent in January 2019.

CPI inflation for rural consumers spiked 16.3 percent year-on-year in January 2020, as compared to an increase of 13.6 percent in the previous month and 4.6 percent in January 2019. On month-on-month basis, it increased 2.4 percent in January 2020, compared to a decrease of 0.3 percent in the previous month and a decrease of 0.02 percent in January 2019.

Pulse moong rose by 19.74 percent month-on-month, pulse gram 18.2 percent, chicken 17.53 percent, eggs 14.28 percent, wheat 12.63 percent, fresh vegetables 11.7 percent, wheat flour 7.42 percent, sugar5.07 percent. Similarly liquefied hydrocarbons increased 26.17 percent month-on-month, motor fuel 1.94 percent and house rent 1.88 percent.

The cost, year-on-year, of tomatoes rose 157.72 percent, onions 125.32 percent, vegetables 93.6 percent, potatoes87.3 percent, sugar 26.29%, wheat flour 24.06%, eggs 18.05 percent, cooking oil 15.44 percent and meat13.43 percent.

Gas charges also rose 54.84 percent year on year, motor fuel 25.69 percent, construction input items 18.04 percent, motor vehicles17.35 percent, liquefied hydrocarbons 14.06 percent and electricity charges13.99 percent.

Ahsan Mehanti at Arif Habib Corp said the inflation number beat all expectations, even the expectations of the central bank, which was expecting it to be around 13 percent. “It seems that the central bank’s monetary tightening approach to contain inflation has failed to yield desired results.” “These are very high numbers and may reflect on the upcoming monetary policy. The interest rates can be 200 basis points higher than the real inflation, which means the policy rate might increase if the inflation persists at this level,” Mehanti said, adding globally oil prices were declining, which was the only silver-lining in these challenging times.

Muhammad Sohail, CEO of Topline Securities said January inflation rises, more than expectations, by 14.6 percent led by food prices. Rural food prices were up 24 percent in the month,”

Khurram Shehzad at Alpha Beta Core Consultancy said food was driving the headline inflation, “as we have been seeing disruption at various stages of the agricultural food supply chain, from logistical issues to weather-related disruptions as well as scams, hoarding of sugar and wheat, in addition to shortages of tomatoes and onions, recently”. “Indeed, the central bank’s monetary tightening approach has failed, because it is totally (focused on) supply-side issues, called supply-pushed inflation, (and) not demand-pulled,” he added.

Sensitive Price Indicator (SPI) based inflation surged 18.3 percent in January 2020, compared to an increase of 18.1 percent a month earlier and an increase of 3.4 percent in January 2019.

On month-on-month basis, it increased 0.5 percent in January 2020, as compared to a decrease of 2.0 percent a month earlier and an increase of 0.4 percent in January 2019.

Wholesale Price Index (WPI) inflation on year-on-year basis increased 15.4 percent in January 2020 against an increase of 12.4 percent a month earlier and an increase of 12.6 percent in January 2019.

Analysts at Arif Habib Limited expect inflation to remain elevated for regular adjustment in electricity price, another round of gas price increase, increase in prices of petroleum products, and continuous surge in prices of perishable and non-perishable food items.