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Surging house rents fuel CPI inflation in 2020-21: SBP

Surging house rents fuel CPI inflation in 2020-21: SBP

KARACHI: House rent topped the list of 10 contributors to the urban Consumer Price Index (CPI) in June reflecting that housing remains a serious problem but has now turned into a major crisis.

The State Bank of Pakistan (SBP) on Monday issued its Inflation Monitor for June 2021 declaring the house rent as top contributor following witnessing sharp increases in urban areas.

The CPI-based inflation year-on-year for June was 9.7 per cent against 8.6pc in the same month of FY20 while the annual average inflation in FY21 was 8.9pc against 10.7pc in the preceding fiscal year.

Housing has the weight of 19.26pc in the top-10 list while it contributed the highest 12.17pc in the main inflation. This clearly indicates the scarcity of houses which inflated the property prices across the country and ultimately bloated the rents.

The government estimates a shortage of 10 million houses in the country and the shortage is mainly related to urban areas which means more than half of the urban population is living in rented houses.

Realising the gravity of the situation, Prime Minister Imran Khan has made it mandatory for banks to disburse 5pc of their investment for housing projects while the government is providing a sharp cut in the interest rates.

However, the situation as reflected by the housing rent inflation looks still severe particularly for the urban population. Recently, the government announced plans to impose penalty if banks fail to meet their loan disbursement targets for housing projects.

The government did not allocate any large amount in the annual budget for construction of houses and the banks were too reluctant to disburse housing loans fearing defaults.

The housing inflation (reflecting year-on-year change) in June was 6.21pc compared to 4.2pc in June last year.

The second biggest contributor was motor fuel, which has the weight of 2.91pc but its weighted contribution was 10.25pc. Further details showed that the motor fuel inflation (year-on-year change) was 40.48pc in June compared to a decline of 28pc in June 2020.

On third was fresh milk with a weight of 9.77pc, but contribution to inflation in June was 14.19pc compared to 9.67pc in June 2020.

The electricity charges represent the inflation year-on-year with 21.13pc in June compared to a decline of 3.4pc June last year. The weighted contribution was 8.15pc.

The ready-made food inflation was 11.5pc in June compared to 7.97pc with the weighted contribution of 6.48pc in the list of top 10 contributors to the CPI in FY21.

Spices also noted a very high inflation of 23.27pc in June but was even higher with 29.8pc in June 2020. The weighted contribution was 4.27pc.

The wheat flour which had the weighted contribution of 4.12pc, noted an inflation of 13.43pc (year-on-year change) compared to 24.45pc inflation in June 2020.

Meat and vegetable ghee weighted contributions were 3.94pc and 2.87pc respectively. The meat inflation was 16.66pc in June against 10.2pc of previous year. Similarly, ghee showed an inflation of 23.75pc compared to 24.79pc in June 2020.

Published in Dawn, July 21st, 2021

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