The inflation rate slowed down to 8.4% in July amid a double-digit increase in prices of essential kitchen items, fuel and electricity and chances of a spike in imported inflation due to over Rs10 fall in value of the rupee against the US dollar in just two months.

The Pakistan Bureau of Statistics (PBS) reported on Monday that the Consumer Price Index (CPI) rose to 8.4% in July over the same month a year ago. It was the lowest inflation rate in the past nine months despite massive increase in prices of items that affect every household.

The national data collecting agency reported over 33% increase in prices of mustard oil, 32.9% of vegetable ghee and 31.7% surge in prices of the cooking oil, hitting the every household adversely. Similarly, the PBS reported 21.7% increase in electricity charges and 16.4% in fuel prices in July over the same month of the last year.

The surge comes amid sharp fall in the value of the rupee in two months that closed at Rs163.67 to a dollar on Monday. On May 3, the rupee had been traded at Rs153.36 to a dollar, which lost its value by Rs10.31 or 6.7% in just two months.

The reduction in the value of the rupee will push the cost of every imported commodity that includes wheat, sugar, cooking oil, crude oil and the raw materials of the industries.

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The Wholesale Price Index (WPI), which captures prices in the wholesale market, also rose sharply to 17.3% in July over the same month a year ago. Usually, the retail market prices reach the wholesale price levels in four to six months, indicating that the prices will remain high in the near term.

The government has set the average inflation target for the current fiscal year at 8.5%, indicating that the year-on-year inflation may remain in double digits in fiscal year 2021-22.

The PBS reported that the overall inflation rate slowed down in both urban and rural areas. The inflation rate in urban areas remained at 8.7% in July and in rural areas at 8% over the same month of the last year.

The food inflation rate in cities stood at 9.4% and in villages and towns at 7.3%, which was relatively lower than the previous month. Non-food inflation was recorded at 8.2% in urban areas and at 8.7% in rural areas.

Core inflation – calculated by excluding food and energy items – accelerated to 6.9% in urban areas in July, reported the national data collecting agency.

The food group saw a price increase of 8.2% in July from the same month a year ago. Within the food group, prices of non-perishable food items rose 11.6% on an annualised basis but the perishable goods prices effectively reduced by 9%. The inflation rate for the housing, water, electricity, gas and fuel group – having one-fourth weight in the basket – increased to 9.2% last month.

Average prices for the clothing and footwear group rose 9.5% in July. Prices related to transportation rose 10.5% due to higher fuel cost.

In July, eggs prices shot up by one-fourth followed by 23% increase in prices of sugar, nearly 15% wheat flour, according to the PBS. The butter and milk prices increased 13.8% last month.

Majority of the prices increased due to change in taxation policies in the budget, increase in commodity prices in the international market and fall in the value of the rupee.

Published in The Express Tribune, August 3rd, 2021.

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