High utility costs push up headline inflation by 12.9pc

KARACHI: The countryís headline inflation in March increased by 12.91 per cent on year-on-year basis, owing to high utility costs and rise in the international commodity prices, analysts said.

The Consumer Price Index (CPI) also rose by 1.25 per cent during the period under review as compared to February, according to the data issued by the Federal Bureau of Statistics on Saturday.

Consistent rise in utility costs will further inflate prices, analysts said, adding that international commodity prices, including oil, will also affect the local consumer prices. Therefore, it is expected that the 12-month average inflation will hover around 12 per cent.

Sohail Ahmed, CEO, Topline Securities, said that inflation is still on the higher side as compared to the targets set by the government.

“The headline inflation will stand at around 12.5 per cent by the end of the current fiscal year,” he said.

Analysts are less optimistic about any significant change in the next monetary policy statement due in May.

The present trend of inflation and meager chances of aid inflow from the Friends of Democratic Pakistan will prevent the central bank reduce interest rate, said Sohail.

Some other analysts are of the view that though the central bank will keep the policy rate unchanged in the upcoming policy, inflation figures will not have any significant impact.

Khurram Schehzad, Head of Research, InvestCap Securities, said that the government borrowing has increased in recent months, creating liquidity problems. ìConsidering, less liquidity in the market, the State Bank will maintain the present monetary stance,î he said.

The CPI figures are as per the expectation and slight increase in headline inflation is the consequence of recent rise in the local oil prices, Schehzad said.

In the last monetary policy announced in March, the central bank had kept the policy rate unchanged at 12.5 per cent due to threats of high inflation.

“Inflationary pressures have dampened, but will continue to haunt the country, mainly due to alignment of energy sector prices with market factors,” he said.

The central bank, however, estimated that the 12-month inflation will remain in the range of 11 per cent and 12 per cent.

The countryís headline inflation mounted to 25 per cent in October 2008 due to sharp increase in oil prices and political instability, as well as security situation. However, inflation growth eased to 8.9 per cent in October 2009, but rebounded towards higher side on the back of government decisions to increase power and gas tariffs.

The International Monetary Fund (IMF) has also warned the authorities that higher inflation threats will further inflate prices.

Initially, the fund had provided $7.6 billion to Pakistan for bringing improvement in the overall economic conditions and later enhanced it to $11.3 billion.

The fund in its country report on Pakistan had advised the State Bank to adopt a cautious approach in the next monetary policy, despite high utility costs and rise in international commodity prices.

Source: http://www.thenews.com.pk/daily_detail.asp?id=233605