ISLAMABAD, Pakistan, 1 February (Reuters) – Pakistan’s consumer price index (CPI) increased 13% from a year ago in January, the largest increase in two years, according to the government statistics department. According to a press statement from the Pakistan Bureau of Statistics, inflation was 12.3 percent in December.
What is the current rate of inflation?
The US Inflation Rate is the percentage increase in the price of a selected basket of goods and services purchased in the US over a year. The US Federal Reserve uses inflation as one of the indicators to assess the economy’s health. The Federal Reserve has set a target of 2% inflation for the US economy since 2012, and if inflation does not fall within that range, it may adjust monetary policy. During the recession of the early 1980s, inflation was particularly noticeable. Inflation rates reached 14.93 percent, prompting Paul Volcker’s Federal Reserve to adopt drastic measures.
The current rate of inflation in the United States is 7.87 percent, up from 7.48 percent last month and 1.68 percent a year ago.
This is greater than the 3.24 percent long-term average.
Why is Pakistan’s inflation so high?
Market turbulence on a global scale Opposition parties blame Khan’s government for the country’s economic mismanagement, but officials believe soaring inflation in Pakistan is due to global market uncertainty caused by the COVID virus.
Why is Pakistan’s inflation rate so high?
The new inflation reading may have an impact on interest rates set by the State Bank of Pakistan (SBP), which now bases policy rates on headline inflation rather than core inflation.
Analysts had projected inflation to be in the double digits, and current CPI inflation was in line with their expectations.
They projected that inflation would remain high year on year due to low base inflation last year, but that the rate would be determined by three factors: electricity prices, rupee-dollar parity, and foreign commodity prices.
An analyst at AHL, Sana Tawfiq, told Geo.tv that the inflation rate is in line with market expectations.
Tawfiq explained: “Non-food items such as accommodation and transportation caused the year-over-year increase. Furthermore, last year’s base inflation was smaller.”
The transport index increased significantly, according to the researcher, as a result of rising oil costs on the worldwide market and their spillover effect on local petroleum product prices.
“A declining month-over-month inflation rate is a positive development, and it comes on the heels of an improvement in food inflation, which fell for the second month in a row,” she said.
Following the Monetary Policy Committee meeting last week, the national data-gathering agency released the most recent inflation figures. The interest rate was kept at 9.75 percent by the committee.
The Wholesale Price Index (WPI), which measures wholesale market prices, increased by 24 percent in January, compared to 6.4 percent the previous month.
According to the PBS, the general inflation rate increased in both urban and rural areas. In January, urban inflation dipped to 13%, but rural inflation soared to 12.9 percent, compared to the same month the previous year. In January of last year, the inflation rate in urban regions was 5%, while it was 6.6 percent in rural areas.
On a yearly basis, food inflation rates in rural and cities increased to 13.3 percent and 11.8 percent, respectively. Food inflation in rural and towns was 7.2 percent and 7.3 percent, respectively, in January 2021.
The rate of non-food inflation in urban regions was 12.8 percent and 13.9 percent in rural areas, respectively, compared to 3.7 percent and 6.1 percent in the same month last year.
Core inflation, which excludes food and energy, increased by 8.2% in urban areas and 9% in rural regions in the month under review, according to the national data collection agency.
In comparison to the same month a year ago, the food group recorded a price increase of 12.82 percent in January. Prices of non-perishable food items increased by 13.77 percent on an annualized basis within the food group, while prices of perishable goods decreased by 6.43 percent year over year.
Housing, water, electricity, gas, and fuel inflation jumped 15.53 percent year over year in the last month, accounting for one-fourth of the basket’s weight.
In January, the average price of apparel and footwear jumped by 11.18 percent. Transportation costs increased by 23.05 percent (year-on-year).
According to the PBS, the price of pulse masoor increased by 6.13 percent month over month, followed by a 4.79 percent increase in gram whole, 4.11 percent increase in fruits, and over 3 percent increase in wheat. Meat and rice prices increased by 1.78 percent and 1.28 percent, respectively, in the previous month.
According to the PBS, the average inflation rate for the first seven months of the current fiscal year (July – January) was 10.26%.
Tawfiq projected that the central bank would maintain the status quo at its next monetary policy meeting, which is set for March 8. She also stated that interest rates should stay the same till the end of the current fiscal year 2021-22.
Meanwhile, Tawfiq projected that, as a result of the government’s efforts to control food inflation, month-on-month inflation will fall in the next months.
“Overall inflation will fall as the base effects fade,” she said, adding that the respite will be accompanied by a drop in food inflation.
However, the expert pointed out that there are several elements that can influence the inflation rate, such as electricity costs and the Ramzan factor.
Meanwhile, due to base effects and rising energy prices, central banks have predicted that inflation will remain high in the near term.
What is the inflation rate for 2021?
The United States’ annual inflation rate has risen from 3.2 percent in 2011 to 4.7 percent in 2021. This suggests that the dollar’s purchasing power has deteriorated in recent years.
Why Central Banks wish to keep inflation at 2%
- Firms may experience uncertainty and bewilderment as a result of high inflation. With growing prices and raw material costs, investing becomes less appealing, which might lead to slower long-term growth.
- When inflation rises above 2%, inflation expectations rise, making future inflation reduction more difficult. Long-term expectations will be kept low if inflation stays below 2%.
- Inflation of more than 2% may suggest that the economy is overheating, which could result in a boom-bust cycle.
- If your inflation rate is higher than your competitors’, your economy’s exports will be less competitive, and the exchange rate will depreciate.
Why do we target inflation of 2% rather than 0%?
A rate of 0% inflation is close to deflation, which puts a different kind of cost on the economy. As a result, 2% inflation brings the following advantages:
- It can render monetary policy ineffectual because negative interest rates are not possible.
How is inflation beneficial?
Inflation is and has been a contentious topic in economics. Even the term “inflation” has diverse connotations depending on the situation. Many economists, businesspeople, and politicians believe that mild inflation is necessary to stimulate consumer spending, presuming that higher levels of expenditure are necessary for economic progress.
How Can Inflation Be Good For The Economy?
The Federal Reserve usually sets an annual rate of inflation for the United States, believing that a gradually rising price level makes businesses successful and stops customers from waiting for lower costs before buying. In fact, some people argue that the primary purpose of inflation is to avert deflation.
Others, on the other hand, feel that inflation is little, if not a net negative on the economy. Rising costs make saving more difficult, forcing people to pursue riskier investing techniques in order to grow or keep their wealth. Some argue that inflation enriches some businesses or individuals while hurting the majority.
The Federal Reserve aims for 2% annual inflation, thinking that gradual price rises help businesses stay profitable.
Understanding Inflation
The term “inflation” is frequently used to characterize the economic impact of rising oil or food prices. If the price of oil rises from $75 to $100 per barrel, for example, input prices for firms would rise, as will transportation expenses for everyone. As a result, many other prices may rise as well.
Most economists, however, believe that the actual meaning of inflation is slightly different. Inflation is a result of the supply and demand for money, which means that generating more dollars reduces the value of each dollar, causing the overall price level to rise.
Key Takeaways
- Inflation, according to economists, occurs when the supply of money exceeds the demand for it.
- When inflation helps to raise consumer demand and consumption, which drives economic growth, it is considered as a positive.
- Some people believe inflation is necessary to prevent deflation, while others say it is a drag on the economy.
- Some inflation, according to John Maynard Keynes, helps to avoid the Paradox of Thrift, or postponed consumption.
When Inflation Is Good
When the economy isn’t operating at full capacity, which means there’s unsold labor or resources, inflation can theoretically assist boost output. More money means higher spending, which corresponds to more aggregated demand. As a result of increased demand, more production is required to supply that need.
To avoid the Paradox of Thrift, British economist John Maynard Keynes argued that some inflation was required. According to this theory, if consumer prices are allowed to decline steadily as a result of the country’s increased productivity, consumers learn to postpone purchases in order to get a better deal. This paradox has the net effect of lowering aggregate demand, resulting in lower production, layoffs, and a faltering economy.
Inflation also helps borrowers by allowing them to repay their loans with less valuable money than they borrowed. This fosters borrowing and lending, which boosts expenditure across the board. The fact that the United States is the world’s greatest debtor, and inflation serves to ease the shock of its vast debt, is perhaps most crucial to the Federal Reserve.
Economists used to believe that inflation and unemployment had an inverse connection, and that rising unemployment could be combated by increasing inflation. The renowned Phillips curve defined this relationship. When the United States faced stagflation in the 1970s, the Phillips curve was severely discredited.