Political, economic woes potential reasons for rising price levels.
ISLAMABAD - Inflation has once again ballooned to 35.4 percent in March due to multiple reasons including currency depreciation and massive increase in energy prices. Inflation, measured through consumer price indicator (CPI), has increased to 35.4 percent in March this year; reportedly higher in the last five decades. On a month on month basis, it has increased to 3.7 percent in March 2023 as compared to an increase of 4.3 percent in the previous month (February), according to the latest data of Pakistan Bureau of Statistics (PBS). The ministry of finance has already warned that inflation is expected to stay at elevated levels owing to market frictions caused by relative demand and supply gap of essential items, exchange rate depreciation and recent upward adjustment of administered prices of petrol and diesel. In its monthly report, the ministry noted that due to the lagged effect of floods, the production losses especially of major agriculture crops has not yet been fully recovered. Consequently, the shortage of essential items has emerged and persisted. Inflation may further jack up as a result of the second round effect. Another potential reason for rising price levels is the political and economic uncertainty. The economic distress resulting from the delay of the stabilisation programme has exacerbated the economic uncertainty due to which inflationary expectations have remained strong.
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The massive increase in inflation rate has multiplied the prospects of a further rise in interest rates in the upcoming monetary policy committee (MPC) meeting scheduled for April 4. The MPC of the State Bank of Pakistan might increase the interest rate by one to two percent to control the inflation rate, which is also one of the conditions of the International Monetary Fund (IMF) for reviving of loan programme. The central bank had increased on March 2 the policy rate by 300 basis points to 20 percent. The economic experts believed that inflationary pressures will persist in April as most of the impact of increase in Ramazan-related food prices and removal of wheat subsidy is yet to reflect in the (monthly) CPI inflation data. According to the PBS data, the CPI inflation urban increased by 33 percent on a year-on-year basis in March 2023. Meanwhile the CPI inflation for rural has enhanced by 38.9 percent. Meanwhile, it has enhanced by 27.26 percent in nine months (July to March) of the current fiscal year. The Sensitive Price Index (SPI), which gauges rates of kitchen items on a weekly basis, increased by 30.5 percent. On a monthly basis, Wholesale Price Index (WPI) inflation on YoY basis increased by 34.15 percent in March 2023.
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The break-up of inflation of 35.37 percent showed that food and non-alcoholic beverages prices increased by 47.15 percent last month. Similarly, health and education charges went up by 18.46 percent and 7.18 percent, respectively. Similarly, prices of utilities (housing, water, electricity, gas and fuel) increased by 17.49 percent in the last month. Meanwhile, the prices of alcoholic beverages and tobacco went up by around 140.02 percent. Prices of clothing and footwear increased by 21.93 percent and furnishing and household equipment maintenance charges 38.99 percent. Recreational charges and those related to culture went up by 50.59 percent in the period under review, while amounts charged by restaurants and hotels by 38.49 percent in March 2023 as compared to the same month last year.