ISLAMABAD: The Finance Ministry has expected that the Consumer Price Index will remain between 4.5 to 5.5 percent during the current fiscal year.
“The CPI remained volatile the previous fiscal year, but it has continued declining trend throughout the first half of the current fiscal year,” a well placed source at the Finance Ministry told Customs Today , saying that the CPI declined from 8.2% in June 2014 to 4.3 percent in December 2014.
The source said that average CPI inflation during H1FY15 moderated to 6.1% from 8.9 percent in the corresponding period of last year; much lower than FY15’s target of 8.0 percent. This allowed the Finance Ministry to permit SBP to cut the policy rate by 50 basis points during November 2014, while maintaining a positive real rate of return. The source said that decline in inflation was mainly driven by falling trend in global commodities prices especially that of oil, lowering food inflation, phasing-out of the impact of major electricity price hike in October-2013, lowering government borrowing from SBP and benign inflationary expectations for the coming months of FY15.
“Lower government borrowing from the banking system, partly owing to better fiscal consolidation efforts of the government, helped to keep inflation under check in two ways; it relatively shrank the money supply impacting inflation directly as well as it also anchored future inflationary expectations impacting current inflation in the desired direction and improved external financing of the fiscal gap supported exchange rate stability that also contributed in easing pressure on domestic prices of imported goods,” the source added. The source said that easing inflationary pressure suggested only moderate aggregate demand in the economy despite LSM growth being low which was also evident from lower private sector credit uptake.
“This is reflected in both measures of core inflation,” the source added saying that 20% percent trimmed core inflation and non-food non-energy (NFNE) inflation had been recorded at 6.3% and 7.6 % during first half of the current fiscal year respectively as compared to 8.3%t and 8.4 % during the corresponding period in previous fiscal year respectively. Similarly, the source said that broad-based ease in underlying inflationary pressures could also be observed from continuous rise in the number of CPI items showing inflation of less than 5.0%t in FY15, however, the reduction in domestic petroleum prices would generate windfall gains for the households in the economy which, in the short run, could result in some additional spending for consumption
Quoting the IBA-SBP Consumer Confidence Survey of January 2015, the source said that survey showed lower expected inflation for the next six months; inflation expectations, gauged by scheduled banks’ increasing interest in the long term government securities also suggested decline; a trend likely to continue in second half of fiscal year as well.
“Furthermore, IBASBP Consumer Confidence Index (CCI) clocked its highest recorded level in January 2015, therefore, keeping these developments in view, and constrained by the unpredictable global oil price, SBP expects average CPI inflation to remain in the range of 4.5 – 5.5 percent in FY15.
