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October 12, 2018

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Traders see commodity costs going up 25pc to push double-digit inflation

Traders see commodity costs going up 25pc to push double-digit inflation

KARACHI: Rupee devaluation of 7.8 percent with gas tariff hike will increase commodity prices by 15 to 25 percent, pushing inflation to double digits in the months ahead, analysts and traders said.

US dollar on Tuesday closed at Rs133.64 in the interbank market against previous day’s closing of Rs124.27. It had an impact of around 3.5 percent on gold prices in the local market in one day.

One tola gold closed at Rs62,190, up 3.5 percent against Rs60,060 on Monday. “We had trading of only 15 to 20 percent, while 80 percent buyers remained away,” Muhammad Shafi Khan, a senior goldsmith, told The News.

Arif Habib Commodities CEO and Managing Director Ahsan Mehanti said that after the government authorities disclosed they would seek the International Monetary Fund for a bailout, the capital market saw a rally.

However, IMF would not be giving the bailout in cash, he said, it would be conditional. “Pakistan will have to curtail CPEC (China-Pakistan Economic Corridor) expenditures,” he said. Saudi Arabia has also refused to reschedule the oil payments.

Inflation would likely reach double digits, while gas and oil prices would increase by 15 percent. Interest rate might further rise by 2.5 to 4 percent, he said.

Rupee was likely to face further devaluation of around 7.0 percent to Rs145. Depreciation impact has was yet to show on the market. “There is fear. Interest rate increase will be negative for the market,” Mehanti added.

Warning that severe challenges lay ahead for the government the CEO said, “They will have to work hard to make some improvements in the economic outlook.”

All Sindh Sarafa Association President Al-Haj Haroon Chand said the market was down after currency depreciation. “Due to dollar appreciation, purchasing power parity has further increased. Dollar will further go up. Gold will also go up, it depends on dollar,” he said.

Retail Grocers Association Secretary General Farid Qureshi said the transporters had already increased the rates up to 25 percent after an increase in the CNG price. “Rupee depreciation and an increase in the prices of CNG and petrol will indirectly have impact of around 25 percent rise in consumer goods,” he said. “Customers are stuck under huge inflation from all sides.”

Qureshi said that in the past, inflation has never increased at that high a rate. “Biscuits, bread and other food item prices will soon increase,” he cautioned.

Goldsmith Muhammad Shafi Khan said, “When dollar rate remained at Rs105, gold prices in our market were lower by Rs1,500 to Rs2,000 against international market, because old gold was in circulation.”

With the currency depreciation, prices would go up against international prices. “Gold price will increase by one to two percent than rupee depreciation. Diamond will also take direct impact,” he added.

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