Energy and veggies spike CPI
BR Research had kept a close eye on the development and the PBS, did not blink this time and seems to have accounted for the subtle changes in effective domestic gas tariffs. Recall that the government had notified increased fixed rate for both protected and non-protected consumption slabs, in addition to significant increase in minimum charges. Given protected consumers are at least 60 percent of all domestic gas consumers – the CPI impact on urban class was going to be substantial. The previous weekly SPI reading for the bottom quintile also shows a 30 percent increase – which sounds about right. Well done to the PBS for not missing it!
The 23 percent increase in gas prices takes the cake in month-on-month urban CPI increase of 3.45 percent- contributing 41 percent to the month-on-month increase. This is also the highest month-on-month increase since November 2023. Guess what happened in November 2023? Yes, the gas prices went up by a small matter of 280 percent in a go.
Electricity price increase was another major contributorwith a month-on-month jump of 14 percent – highest in 19 months. This is despite the base tariffs revised down in July 2025. The increase reflects surprising abolishment of Rs1.71/unit subsidy, announced in April 2025. The communication with IMF stated the subsidy will last the entire FY26, but it was not the case. That said, month-on month changes for at least the next quarter should be limited – given a sizeable negative periodic adjustment on the way.
On the rural front, the 2.15 percent month-on-month change is the highest since July last year. It is the food basket that makes the biggest difference, with 3 percent increase. The charge is led by 'fresh vegetables' with the highest-ever ever month-on-month reported increase of 56 percent. The category contributes a stellar 40 percent to urban month-on-month CPI increase.The PBS tracks no less than 15 vegetables in the category. Only the price of garlic is published in the weekly SPI – and the monthly increase of 14 percent there suggests the more substantial increase would have come from any of the ladyfinger, spinach, carrots or lemons.
The core reason why rural price change is lower than that in urban settings is largely because rural basket does not account for natural gas, and instead has firewood, where the rate of change is rather small. In weighted contribution terms, non-food contributes over 90 percent in both urban and rural settings. In the food basket, barring extreme events, month-on-month price change should normalize going forward, given it is led largely by perishable items – primarily vegetables with over 4 percent weight in rural and 3 percent in urban baskets.
Core inflation, though, remains sticky - refusing to budge down, again clocking 7 percent year-on-year for urban and 8.1 percent for rural. For general inflation in FY26, it is too early to make year-end calls, but if FY26 ends up anywhere near the central bank's 5-7 target – it will be the first time since at least the CPI rebasing, for annual inflation to stay in single digits, with a month-on-month reading in excess of 2.5 percent.
Copyright Business Recorder, 2025
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