Pakistan’s CPI soars to highest rate in nearly 50 years

Rising food, drink and transportation costs push the consumer price index to 31.5 percent in February, the highest since 1974.

Pakistan’s consumer price index (CPI) rose 31.5 percent year-on-year in February, the statistics agency says, its highest annual figure in nearly 50 years, while prices of food, beverages and transport rose more than 45 percent.

The rate in February is the highest since 1974, when the average inflation rate for the 1973-1974 fiscal year was 32.8 percent, a spokesman for Pakistan’s Bureau of Statistics told Reuters news agency on Wednesday.

Prices were 4.3 percent higher last month than the previous month, the agency said in a statement. In January, the CPI increased by 27.6 percent on an annual basis.

Prices of food and non-alcoholic beverages rose 45 percent from last year, while prices of alcoholic beverages and tobacco rose 47.6 percent due to increased excise taxes on cigarettes.

In February, the government passed an additional law that increased the tax on goods and services from 17 percent to 18 percent to raise 170 billion rupees ($639 million) in additional revenue for this fiscal year, which ends in July.

The government is tightening its belt, trying to raise revenue through taxes and has allowed the rupee to depreciate as it strikes a deal with the International Monetary Fund (IMF) to secure more than $1 billion in funding.

The rupee lost 1.7 percent of its value against the dollar on Wednesday to close at 266.11 against the dollar. The rupee has depreciated nearly 15 percent since the start of the calendar year, adding to inflation.

“This is not yet the pinnacle. March is expected to be higher,” said Fahad Rauf, head of research at Ismail Iqbal Securities, a local brokerage firm. “Food prices are expected to go even higher as Ramadan approaches.”

Mustafa Pasha, chief investment officer at Lakson Investments, said: “Inflation is expected to continue to rise in the coming months as IMF-mandated structural adjustments and currency devaluation seep through the supply chain.”

Core inflation increased by 17.1 percent and 21.5 percent year-on-year for urban and rural centers, respectively. Core inflation is a measure of price increases that excludes volatile energy and food products.

“Core inflation is something that the central bank should keep an eye on when determining the size of the policy rate hike,” Pasha said.

Investors expect the State Bank of Pakistan to raise its key policy rate by 200 basis points at an off-cycle meeting on Thursday.

Rauf added that the accelerating pace of core inflation further increases the possibility of a larger increase.