As opposed to a common perception, Karachi is no longer the poor man’s city. The State Bank of Pakistan (SBP) Inflation Monitor June 2016 revealed on Saturday that the metropolis is the most expensive city of the country.
“Consumer Price Index (CPI), on year-on-year basis, in federal and provincial capitals of Pakistan remained lower than overall inflation during June 2016 except Karachi,” said the Statistics and Data Warehouse Department of the SBP.
The metropolis witnessed 4.7 per cent inflation in June, a slight change from 4.6 per cent CPI in the corresponding month last year, significantly surpassing other cities including Islamabad.
Interestingly, the federal capital, which is usually dubbed as the most expensive city in the country, saw significant drop in CPI as 2.5 per cent was recorded compared to 4.6 per cent during the same period last year.
Lahore and Peshawar also witnessed significant reduction in inflation. Lahore topped the list for being the cheapest city as it recorded 0.8 per cent inflation against its 3.2 per cent rate last year. Similarly, Peshawar managed to decrease its inflation rate from 4.5 per cent to 1.2 per cent while Quetta could only record a slight depreciation from 2.6 to 2.5 per cent.On month-on-month basis, Karachi and Islamabad registered 1.6 and 0.4 per cent increase in CPI, respectively. Lahore and Peshawar negative inflation with 0.2 and 0.3 per cent, respectively. Meanwhile, Quetta’s CPI increased by 1.7%.
Earlier on Monday, a survey conducted jointly by the SBP and Institute of Business Administration (IBA) concluded that Pakistanis expect relatively higher consumer prices in coming months.
“The relatively high inflation expectations are evident for all the commodity groups, food, energy and non-food non-energy items,” according to the brief commentary of the bi-monthly SBP-IBA Consumer Confidence Survey.
In its latest monetary policy statement, the SBP said that increased economic activity in the coming months may impact inflation. It forecasts average CPI inflation in the range of 4.5 per cent to 5.5 per cent for 2016-17.
According to the SBP, any upward adjustments in gas tariff, fiscal slippages and supply disruptions pose risk to its inflation forecast.
Dispelling the impression that Islamabad is Pakistan’s costliest city, Karachi has emerged as the most expensive metropolis in the country while Lahore is the least expensive.
According to State Bank’s Inflation Monitor, June 2016, inflation in Karachi – once known as a poor man’s city – has been at its highest level during the year, leaving the capital city of Islamabad way behind.
According to the Inflation Monitor, the Consumer Price Index in June 2016 (year-on-year basis) in Karachi was 4.7 per cent, pretty much the same as 4.6pc in June 2015. This constant inflationary pressure in Karachi was unlike the other cities including Lahore, Islamabad, Quetta and Peshawar.
Compared to 4.7pc inflation in Karachi, Lahore witnessed 0.8pc inflation in June 2016. The CPI for Lahore in June 2015 was 3.2pc, highlighting a massive decline in the current year.
In June 2016, Islamabad’s inflation was 2.5pc, almost half of the 4.6pc in June 2015.
The State Bank provided no reason as to why Karachi has the highest inflation. The city has the highest crime rate with an average of 172 crimes per day in July 2016.
“The CPI Inflation on year-on-year basis in federal and provincial capitals of Pakistan remained lower than overall inflation during June 2016 except Karachi,” said the Inflation Monitor.
The overall inflation during June 2016 was 3.2pc, same as in June 2015 – excluding Karachi which remained above the overall inflation for a year.
“Among these five cities (Peshawar, Quetta included), the lowest inflation was observed in Lahore at 0.8pc while the highest inflation was observed in Karachi at 4.7pc,” said the SBP report.
Month-on-month basis, Lahore and Peshawar showed negative inflation of 0.2pc and 0.3pc respectively in June 2016 while Islamabad, Karachi and Quetta showed an increase of 0.4pc, 1.6pc and 1.7pc in June respectively.
While most of the estimated 20 million citizens of Karachi hail from lower, lower middle and middle classes, the dumping of massive black money has changed the economic environment of the city which was Pakistan’s cheapest city for decades – an added attraction for the people living other parts of the country.
The recent boom in property prices also hit the inflation high in Karachi.
The State Bank report said inflation rates should be analysed on the basis of seasonally adjusted rates. This is especially needed for inflation rates on month-on-month basis.
“Annualised rate of CPI inflation in June 2016 (corresponding to the seasonally adjusted month-on-month rate) is 7.74pc,” said the SBP report.
Seasonal adjustment is the process of estimating and removing the seasonal effects from a time series after decomposing it into seasonal, trend, cycle and irregular components. Seasonally adjusted changes are usually preferred for analysing general price trends in the economy because they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year.
The stats include a 4.4 percent inflation on food items and 11.8 percent on non-food items.
High inflation rates were recorded in some other cities as well. Abbottabad was followed by Turbat with 6.0 percent inflation, Faisalabad with 5.5 percent, Jhang with 5.4 percent and Karachi reportedly had an inflation rate of 4.7 percent.
Dadu is followed by Hyderabad with 0.1 percent, Lahore with 0.8 percent, D.I Khan with 1.9 percent and Peshawar reported an inflation of 1.2 percent.
Among federal and provincial capitals (Islamabad, Karachi, Lahore, Quetta and Peshawar), Lahore had the least inflation rate due to a 1.4 percent reduction in food item prices while non-food items stood at 2.7 percent. Karachi was the most expensive with 3.2 percent and 5.7 percent on food and non-food items respectively. The inflation rates were generally below the country’s average rate in all capitals except Karachi.
Overall inflation was recorded as 3.2 percent for June 2016. However, SBP’s new monetary policy predicts an average inflation between 4.5-5.5 percent during the next fiscal year. The results will still be dependent on oil prices and fiscal slippages.