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September 21, 2017

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Consumers of electricity get less bang for their buck in Pakistan

Dawn/Asia News Network--People are paying more for less electricity in Pakistan.

Despite public outburst over frequent power failures, the suppliers kept increasing the prices, reveals the State Bank of Pakistan's (SBP) Inflation Monitor (June 2014).

Among the top 15 contributors to inflation, electricity was the biggest contributor after education, which was slightly higher.

The electricity contribution to the consumer price index (CPI) in June 2013 was zero, while in June 2014 it had risen to 15.82 percent.

This massive increase in electricity prices in the first year of the newly elected government could not resolve the problem of load-shedding despite the fact that prior to elections, the government had promised that it would resolve the electricity problem in the country.

While the contribution in CPI has been rising, electricity theft has risen and recovery has significantly dropped despite the increased prices of this commodity.

How fast non-food inflation has been hitting consumers was visible from the report, which showed that the weighted contribution of housing, water, electricity, gas and other fuels in the CPI was just 3.84 percent in June 2013. The weight of these commodities jumped to 29.57 percent of CPI in June 2014.

The high non-food inflation played a key role in increasing poverty, which particularly hit the middle and lower-middle class, and widened the gap between the houses built and houses needed.

Surprisingly, the weight of food items in the CPI has been declining fast while the people are experiencing higher food prices. The continued high core inflation is also one of the reasons for its greater weight in the CPI inflation.

According to the SBP report, the contribution of food in CPI inflation was 55.58 percent in June 2013 while it fell to 37.67 percent in June 2014.

The SBP stated that it developed a new method of permanently excluding relatively volatile commodities from the CPI basket in Pakistan.

This is achieved by making use of a trimming approach on past data on monthly CPI changes to isolate a relatively stable component of CPI as a new measure of core inflation.

This method ensures inclusion of both food and non-food commodities that show persistent price behavior in Pakistan.

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