Inflation hammer is at its full swing. The headline number stood at 11.5 percent in November, highest since Feb-20. On monthly basis, the increase is 3 percent – highest since July 2008. Wholesale Price index (WPI) is at whopping 27 percent – again highest since 2008. The pick in WPI (with higher commodities weight) implies that global commodity prices hike amid currency depreciation has come into play. That is evident by bombarding of imports at well over $7 billion in November which is complemented by higher FBR tax collection – up by 37 precent in Nov.

These records in inflation are not confined to Pakistan. It’s a global phenomenon. Some countries are already witnessing inflation at multi-years or multi-decades high. Nonetheless, its hurting Pakistan badly as it is high over an already high base, and headline inflation is perhaps the highest in the region. Just to give perspective, the CPI index is up by 39 percent in 39 months of the PTI government. That is not a neat scorecard.

CPI in this fiscal year is moving up dangerously. It is up by 9.2 percent in the last five months alone. That is changing the equation. 5MFY22 average inflation stood at 9.2 percent, and the high base is showing double digits inflation in the second half. The outlook is surely to be higher than SBP’s expected inflation between 7-9 percent in FY22.

The price increase is all around. The urban CPI (MoM) is up by 2.9 percent while rural increase is at 3.1 percent. The (MoM) hit is harder in food for urban – up by 3.9 percent versus 3.3 percent in rural. The yearly CPI increase is at 12 percent for urban and 10.9 percent for rural.

The core inflation is moving up too – it stood at 7.6 percent for urban and 8.2 percent for rural. The trimmed core is approaching double-digits – at 9.8 percent for urban. This is due to the pass through of many commodities where the cost is higher due to higher international commodity prices and currency depreciation. There could be second round impact of food and energy prices.

The usual food items are moving up - such as tomatoes, vegetables, and cooking oil. On non-food, the increase is obvious in motor fuel and electricity charges. But there are other items too which indicate that core is moving up - such as construction material, clothes, motor vehicle accessories, and drugs. One may argue that these increases are due to pressure of international commodity prices and currency depreciation. Yes, that is true. But one cannot deny the second-round effect. Here are some examples of second round effect – marriage halls rents are up by 7.7 percent and personal effects by 5.4 percent in a month. Expect more items of similar nature to revise up prices in the coming months. The middle class is already facing a brunt on monthly grocery bill.

Then the WPI extraordinary increase would have its bearing on the headline inflation. Plus, the pass on of the hike in commodity prices is visible too. Some notable examples are fertilizers, chemicals, fiber crops and bed foams where there is a double digit increase within a month. Then the increase in carpets, bricks and blocks, and detergents are high too.

Whatever the lens one uses to justify these, the fact cannot be denied that the inflation is too high in Pakistan and its hurting poor and middleclass badly. The question is how SBP would react to this in the upcoming monetary policy. It appears that the market has already priced in another 75-100 bps increase.

This article first appeared in Business Recorder on Dec 2, 2021