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 will Pakistan’s inflation rate be in 2022?
Pakistan’s annual inflation rate increased for the sixth month in a row to 13.3% in January 2022, up from 12.3 percent in December and the highest level since January 2020.
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 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.
What is the inflation rate in China?
According to Trading Economics global macro models and analysts, China’s inflation rate is predicted to be 1.20 percent by the conclusion of this quarter. According to our econometric models, the China Inflation Rate is expected to trend around 2.00 percent in 2023.
What Does Inflation Imply?
Inflation is defined as the rate at which prices rise over time. Inflation is usually defined as a wide measure of price increases or increases in the cost of living in a country.
In 2021, which country will have the highest inflation rate?
Venezuela has the world’s highest inflation rate, with a rate that has risen past one million percent in recent years. Prices in Venezuela have fluctuated so quickly at times that retailers have ceased posting price tags on items and instead urged consumers to just ask employees how much each item cost that day. Hyperinflation is an economic crisis caused by a government overspending (typically as a result of war, a regime change, or socioeconomic circumstances that reduce funding from tax collection) and issuing massive quantities of additional money to meet its expenses.
Venezuela’s economy used to be the envy of South America, with high per-capita income thanks to the world’s greatest oil reserves. However, the country’s substantial reliance on petroleum revenues made it particularly vulnerable to oil price swings in the 1980s and 1990s. Oil prices fell from $100 per barrel in 2014 to less than $30 per barrel in early 2016, sending the country’s economy into a tailspin from which it has yet to fully recover.
Sudan had the second-highest inflation rate in the world at the start of 2022, at 340.0 percent. Sudanese inflation has soared in recent years, fueled by food, beverages, and an underground market for US money. Inflationary pressures became so severe that protests erupted, leading to President Omar al-ouster Bashir’s in April 2019. Sudan’s transitional authorities are now in charge of reviving an economy that has been ravaged by years of mismanagement.
Is inflation beneficial or harmful?
- 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.
How may Pakistani inflation be reduced?
The Central Bank and/or the government are in charge of inflation. The most common policy is monetary policy (changing interest rates). However, there are a number of measures that can be used to control inflation in theory, including:
- Higher interest rates in the economy restrict demand, resulting in slower economic development and lower inflation.
- Limiting the money supply – Monetarists say that because the money supply and inflation are so closely linked, controlling the money supply can help control inflation.
- Supply-side strategies are those that aim to boost the economy’s competitiveness and efficiency while also lowering long-term expenses.
- A higher income tax rate could diminish expenditure, demand, and inflationary pressures.
- Wage limits – attempting to keep wages under control could theoretically assist to lessen inflationary pressures. However, it has only been used a few times since the 1970s.
Monetary Policy
During a period of high economic expansion, the economy’s demand may outpace its capacity to meet it. Firms respond to shortages by raising prices, resulting in inflationary pressures. This is referred to as demand-pull inflation. As a result, cutting aggregate demand (AD) growth should lessen inflationary pressures.
The Bank of England may raise interest rates. Borrowing becomes more expensive as interest rates rise, while saving becomes more appealing. Consumer spending and investment should expand at a slower pace as a result of this. More information about increasing interest rates can be found here.
A higher interest rate should result in a higher exchange rate, which reduces inflationary pressure by:
In the late 1980s and early 1990s, interest rates were raised in an attempt to keep inflation under control.
Inflation target
Many countries have an inflation target as part of their monetary policy (for example, the UK’s inflation target of 2%, +/-1). The premise is that if people believe the inflation objective is credible, inflation expectations will be reduced. It is simpler to manage inflation when inflation expectations are low.
Countries have also delegated monetary policymaking authority to the central bank. An independent Central Bank, the reasoning goes, will be free of political influences to set low interest rates ahead of an election.
Fiscal Policy
The government has the ability to raise taxes (such as income tax and VAT) while also reducing spending. This serves to lessen demand in the economy while also improving the government’s budget condition.
Both of these measures cut inflation by lowering aggregate demand growth. Reduced AD growth can lessen inflationary pressures without producing a recession if economic growth is rapid.
Reduced aggregate demand would be more unpleasant if a country had high inflation and negative growth, as lower inflation would lead to lower output and increased unemployment. They could still lower inflation, but at a considerably higher cost to the economy.
Wage Control
Limiting pay growth can help to lower inflation if wage inflation is the source (e.g., powerful unions bargaining for higher real wages). Lower wage growth serves to mitigate demand-pull inflation by reducing cost-push inflation.
However, as the United Kingdom realized in the 1970s, controlling inflation through income measures can be difficult, especially if labor unions are prominent.
Monetarism
Monetarism aims to keep inflation under control by limiting the money supply. Monetarists think that the money supply and inflation are inextricably linked. You should be able to bring inflation under control if you can manage the expansion of the money supply. Monetarists would emphasize policies like:
In fact, however, the link between money supply and inflation is weaker.
Supply Side Policies
Inflation is frequently caused by growing costs and ongoing uncompetitiveness. Supply-side initiatives may improve the economy’s competitiveness while also reducing inflationary pressures. More flexible labor markets, for example, may aid in the reduction of inflationary pressures.
Supply-side reforms, on the other hand, can take a long time to implement and cannot address inflation induced by increased demand.
Ways to Reduce Hyperinflation change currency
Conventional policies may be ineffective during a situation of hyperinflation. Future inflation expectations may be difficult to adjust. When people lose faith in a currency, it may be essential to adopt a new one or utilize a different one, such as the dollar (e.g. Zimbabwe hyperinflation).
Ways to reduce Cost-Push Inflation
Inflationary cost-push inflation (for example, rising oil costs) can cause inflation and slow GDP. This is the worst of both worlds, and it’s more difficult to manage without stunting growth.