Edevelop
ELITE MEMBER
- Joined
- Feb 2, 2007
- Messages
- 14,722
- Reaction score
- 23
- Country
- Location
ISLAMABAD: Inflation continued its tame run in December 2014, rising by only 4.3%, the lowest level in over 11 years, largely on the back of tumbling global oil prices.
The rate of increase in prices, as measured by the Consumer Price Index (CPI), clocked in at 4.3% in December compared to the same month in the previous year, the lowest level since February 2004, when the CPI rose by 4.31% on an annualised basis. Core inflation, a measure that excludes the more volatile food and energy prices, also came in at a relatively low level of 6.7% compared to 6.9% in November 2014 and 8.2% in December 2013.
Some commentators have questioned the Pakistan Bureau of Statistics’ (PBS) methodology in calculating the CPI. They argue that excluding the surcharges and other components of the electricity tariffs from the electricity prices used in the index will result in a lower measurement of inflation than the reality. However, the concurrent fall in core inflation suggests that the pace is truly slowing down.
The CPI captures prices of 481 commodities every month from at least 300 markets in 40 cities around the country. However, like in October when the government increased electricity prices by 2.5% through an equalisation surcharge, the national data collecting agency once again did not factor in 5.4% increase in power tariffs through the surcharge.
Last month, the government imposed a Rs0.60-per-unit surcharge on electricity prices to keep prices level even as the fuel component of prices declined. Like many governments around the world, Islamabad is seeking to use the opportunity afforded by falling oil prices to lower the fiscal burden of electricity subsidies by keeping prices level and pocketing the difference in the form of lower subsidies.
Electricity prices in most countries, including Pakistan, have a fuel price component that varies with the average cost of fuel used to make electricity. Given the fact that roughly a third of electricity in Pakistan is produced through oil-fired thermal power generation, the global drop in oil prices meant that the average fuel price component of the tariffs set by the National Electric Power Regulatory Authority (NEPRA) have been declining. However, the government has used surcharges to keep prices the same price so as to lower its subsidy burden.
Furnace oil prices have plunged 45% in the last three months, currently standing at Rs43,015 per ton, said Prime Minister Nawaz Sharif on Wednesday.
“The PBS did not take the Rs0.60 per unit power surcharge into account. Despite the surcharge, consumer prices [of electricity] would remain constant,” said Shaukat Zaman, the Director of Prices at PBS.
In December potatoes prices saw dropped 38.6% over November, breaking a long cycle of high prices of the commodity. The government’s decision to import 200,000 tons potatoes and arrival of fresh crop helped in lowering prices.
Average inflation during first half of the current fiscal year (July-December) was 6.1% compared to the same period of the previous year, according to the PBS. For fiscal 2015, the government had set the inflation target at 8%, which it is expected to achieve on back of reduction in commodities prices.
With the fall in both core inflation and the overall headline inflation, the expectations of further cut in the key discount rate have grown, although the International Monetary Fund (IMF) has been advocating a continued tight monetary policy as a tool to build foreign currency reserves. The benchmark discount rate is currently at 9.5%, though market analysts expect as much as a 100 basis point cut in the next monetary policy announcement later this month.
Falling commodity prices: Inflation hits 11-year low in December – The Express Tribune
The rate of increase in prices, as measured by the Consumer Price Index (CPI), clocked in at 4.3% in December compared to the same month in the previous year, the lowest level since February 2004, when the CPI rose by 4.31% on an annualised basis. Core inflation, a measure that excludes the more volatile food and energy prices, also came in at a relatively low level of 6.7% compared to 6.9% in November 2014 and 8.2% in December 2013.
Some commentators have questioned the Pakistan Bureau of Statistics’ (PBS) methodology in calculating the CPI. They argue that excluding the surcharges and other components of the electricity tariffs from the electricity prices used in the index will result in a lower measurement of inflation than the reality. However, the concurrent fall in core inflation suggests that the pace is truly slowing down.
The CPI captures prices of 481 commodities every month from at least 300 markets in 40 cities around the country. However, like in October when the government increased electricity prices by 2.5% through an equalisation surcharge, the national data collecting agency once again did not factor in 5.4% increase in power tariffs through the surcharge.
Last month, the government imposed a Rs0.60-per-unit surcharge on electricity prices to keep prices level even as the fuel component of prices declined. Like many governments around the world, Islamabad is seeking to use the opportunity afforded by falling oil prices to lower the fiscal burden of electricity subsidies by keeping prices level and pocketing the difference in the form of lower subsidies.
Electricity prices in most countries, including Pakistan, have a fuel price component that varies with the average cost of fuel used to make electricity. Given the fact that roughly a third of electricity in Pakistan is produced through oil-fired thermal power generation, the global drop in oil prices meant that the average fuel price component of the tariffs set by the National Electric Power Regulatory Authority (NEPRA) have been declining. However, the government has used surcharges to keep prices the same price so as to lower its subsidy burden.
Furnace oil prices have plunged 45% in the last three months, currently standing at Rs43,015 per ton, said Prime Minister Nawaz Sharif on Wednesday.
“The PBS did not take the Rs0.60 per unit power surcharge into account. Despite the surcharge, consumer prices [of electricity] would remain constant,” said Shaukat Zaman, the Director of Prices at PBS.
In December potatoes prices saw dropped 38.6% over November, breaking a long cycle of high prices of the commodity. The government’s decision to import 200,000 tons potatoes and arrival of fresh crop helped in lowering prices.
Average inflation during first half of the current fiscal year (July-December) was 6.1% compared to the same period of the previous year, according to the PBS. For fiscal 2015, the government had set the inflation target at 8%, which it is expected to achieve on back of reduction in commodities prices.
With the fall in both core inflation and the overall headline inflation, the expectations of further cut in the key discount rate have grown, although the International Monetary Fund (IMF) has been advocating a continued tight monetary policy as a tool to build foreign currency reserves. The benchmark discount rate is currently at 9.5%, though market analysts expect as much as a 100 basis point cut in the next monetary policy announcement later this month.
Falling commodity prices: Inflation hits 11-year low in December – The Express Tribune
