Aug 1 - 7, 2011

The Pakistan Institute of Development Economics (PIDE) in its inflation expectation survey released recently revealed that the inflation is likely to rise further in the coming months adding further to the poverty level and to the miseries of the common person. According to the survey conducted by this semi-government organization, the inflation would remain high at nearly about 17 percent during the current financial year (2011-12) owing to lack of policy creditability, political uncertainty, taxation policies, prevailing law and order situation in the country and above all lack of any effective mechanism to check hoarders and unjustified profiteering by the middle men who are fleecing the customers.

Pakistan Peoples Party (PPP) led coalition government has failed in controlling the inflation during the previous fiscal year as inflation reached 14 percent against the target of 9.5 per cent.

According to the figures released by the Federal Bureau of Statistics, last week, the consumer price index (CPI) rose to 13.92 per cent in 2010-11 as compared to the year 2009-10, while the government had set the inflation target at 9.5 per cent. Like other economic targets fixed by the government, this target was also missed.

Meanwhile, inflation measured through sensitive price index (SPI) increased by 18.18 per cent and wholesale price index (WPI) shot by 23.35 per cent.

The State Bank of Pakistan (SBP) pursued tight monetary policy throughout the fiscal year by keeping interest rate higher.

However, this exercise proved futile as inflation remained on the higher side. The economists believed that one of the basic reasons behind rising inflation was the government dependence on the central bank for printing of currency notes.

However, the government termed soaring oil prices in the international markets responsible for the higher inflation in the country. This is partly correct as it is also a contributory factor for the rising inflation but the major reason for the ever-rising inflation is the printing of new currency notes without required financial backing.

According to a research report, the present PPP led government had been reckless in printing currency notes to meet its ever-rising expenditures. The report said "on the fateful day when Prime minister Yousuf Raza Gilani assumed office on March 25, 2008 the total money supply in Pakistan stood at Rs5.5 trillion that shot up to Rs7.2 trillion by June 2010.

It took 61 years to print 5.5 trillion rupees while the present government has printed three trillion rupees in just three years.

The prices are going up like never before because the PPP government is printing money like no other had ever done before. It is printing one trillion rupees a year or Rs300 crores every day.

The result is obvious. During 37 months rule of the present PPP led government, the prices of onions have gone up to Rs90 per kg from Rs16 showing 85 percent increase, apple from Rs60/70 to Rs275/300 per Kg and sugar is up by 130 per cent.

The out going governor Shahid Kardar of the State Bank had to leave as he was not prepared to continue this sinister policy.

According to PIDE survey, public is expecting high inflation and high unemployment and remains skeptical about growth rate in future.

Respondents of the survey think that inflation in Pakistan is more in the food prices partly due to the rise in input and transportation costs but mainly due the unchecked profiteering of the middlemen because of bad governance.

According to the survey, tight monetary policy is hardly a panacea to meet the inflation fixed by the government. The survey reveals that majority of respondents in the PIDE Inflation Expectation Survey for March-June 2011 feared overall inflation to rise to over 16 per cent with food inflation to be much higher for the outgoing financial year, which proved almost correct.

Meanwhile, the respondents, which comprised of educated persons and outstanding personalities in their fields, were of the view that inflation in Pakistan was largely being driven by food prices, bad governance and high oil prices.

In addition to these, money supply, utility prices, and fiscal deficit are considered as important determinants of inflation in the country.

Results of the survey reveal that supply shock is another major source of inflation in Pakistan and so only the tight monetary policy is not the solution of the problem.

Monetization of fiscal deficit is also contributing factor in rising inflation. In response to the question regarding the effectiveness of policy to curb inflation, over 80 per cent of the respondents suggested that both monetary and fiscal policies should be used to curb inflation.