Source: Bloomberg

By Farhan Sharif

Jan. 14 (Bloomberg) — Pakistan’s inflation accelerated in December as local wheat prices rose to a record, pushed up by smuggling of the grain to neighboring Afghanistan.

Consumer prices jumped 8.8 percent from a year earlier, after gaining 8.7 percent in November, the statistics bureau said today in Islamabad. Economists expected a 9 percent rise.

Inflation may climb further as riots which erupted after the Dec. 27 assassination of opposition leader and former Prime Minister Benazir Bhutto threaten supplies of wheat and other food staples. That may put pressure on the central bank to increase interest rates later this month.

“January inflation may reach above 9 percent,” said Asif Ali Qureshi, head of research at Invisor Securities Ltd. in Karachi. “High food prices and the impact of record oil prices may lead the central bank to further tighten monitory policy.”

Pakistan’s central bank unexpectedly lifted its benchmark interest rate by half a percentage point to 10 percent on July 31, citing the “worrisome” increase in food prices.

The cost of food and beverages jumped 12.2 percent in December from a year earlier, according to today’s report. Clothing and footwear prices rose 8.6 percent.

Wheat prices in the South Asian nation, the world’s sixth- largest consumer of the grain, have risen by more than 20 percent since November as the government’s failure to curb illegal exports led to a shortage in the domestic market.

An 80-kilogram bag of wheat flour sold for a record 2,000 rupees ($32) on Jan. 7 after riots cut supplies, said Fareed Qureshi, chairman of the Karachi Retail Market Association.

Higher global crude oil costs may also force Pakistan to increase local pump prices in coming months, further stoking inflation. The caretaker government of Prime Minister Mohammedmian Soomro, appointed in November by President Pervez Musharraf to prepare for February’s elections, has so far avoided taking the unpopular step of raising fuel costs.

The State Bank of Pakistan is expected to release its next monetary policy statement in Karachi in the last week of January.

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Tags: Assassination, Benazir Bhutto, economy, Inflation, State Bank, Wheat prices