With the high-base effect of 1HFY11 gradually receding, the latest inflation numbers released by the Pakistan Bureau of Statistics are beginning to show a rise in year-on-year CPI rates again. Yet, despite registering at 11.05 percent in February FY12 on a year-on-year basis, the inflation numbers indicate an overall controlled increase in the overall price index. Details of this become obvious when CPI figures are scrutinised on a month-on-month basis.
On a month-on-month basis, an increase of 0.3 percent in the CPI index was witnessed in February FY12 over the previous month, which was much smaller than the 1.54 percent month-on-month increase seen in January FY12.
Delving into the details, food inflation - carrying the heaviest weight in the CPI index -witnessed a decrease in February this year relative to January, led by the fall in prices of perishable food items, mainly fresh fruits and vegetables.
Even non-perishable food items registered a much lower month-on-month increase in February as against the rise of 1.6 percent on month-on-month basis seen in January this year. SPI numbers, which did not show any significant change during the weeks reflecting Februarys CPI index, testify to the month-on-month fall in the general food price index in the month under review.
As for the housing, water, electricity and gas sub-index, accounting for the second-highest proportion of the CPI with a weight of nearly 30 percent, the month-on-month increase was not as significant as that seen in January this year. These two key components of the overall CPI index showing relatively muted increases on a month-on-month basis explain why the overall rise in inflation this month appears to be a controlled increase.
However, the transport sub-index showed a whopping month-on-month increase of 3.9 percent, which is the highest for the sub-index throughout this fiscal year. With prices of motor fuel and diesel raised significantly at the beginning of February by 6 and 5 percent, respectively, this did not come as much of a surprise. Thus, the month-on-month increase in the overall CPI is accounted for significantly by the transport sub-index.
However, despite the decline in the month-on-month CPI figures in February, the year-on-year CPI increase can plausibly be attributed to a low-base effect of the February the previous year.
Going forward, though the government announced increases in prices of petroleum products and CNG, diesel prices were not raised, indicating that while a month-on-month increase in the transport sub-index is likely to be seen again in the coming month, it will not be as pronounced as that seen in February.
Further, SPI numbers for the last two weeks do not reflect any significant increase either, staying roughly at the same levels, thus indicating that food inflation will not be much changed on a month-on-month basis in March either.
Going by these counts, the month-on-month increase in SPI in March is not likely to be very pronounced, and with a high base effect of March FY11, the overall year-on-year increase will likely clock in at less than 11 percent.