INFLATIONARY PRESSURES CONTINUED TO MOUNT

CPI does not give us the real picture of the inflation prevalent in our country

By KHALIL AHMED
Apr 24 - May 07, 2006

You are worried. I know you are. It is not only you but also the majority of the population; particularly the lower and the middle class. Your monthly income is Rs 35,000 with the recent raise of 10% awarded to you by your boss because of your good performance.

Why are you worried by the way? Inflation rate is 8.4% at present and you have got 10% increment. It means you have got raise which would rather enrich you in real terms. This also indicates that your purchasing power would increase. You don't agree. You are a tenant and pay around Rs 8,000 per month to your house owner. You, by virtue of ease of getting car through car leasing/financing scheme, got a car a couple of years ago and you have been paying around Rs 9000 per month as your monthly installment for your car. You have got three more years to pay the installments for the car which you have been using but now I have seen an astounding change. Instead of going to office by your car, you have opted to go by the office van for which you pay around Rs.1000 per month. Why is it so? It is because if you go by your car, you would incur over Rs 3,500 per month. Oh! You want to save Rs 2500 per month. What about your car? I understand; it is being used sparingly. And all this is because of the soaring oil prices. I must tell you that in 2002 per barrel oil price was $20 and now the price has soared to over $72 according to the prices of the last week. Since the prices have increased in the international market so you expect that soon we would also see increase in petrol prices which at present stand at over Rs.56 per litre.

You used to pay Rs 5000 per month rent for the same house you are living in and now you are paying Rs 8,000 per month, increased by your house owner. This is related to the rising construction cost. The prices of cement and steel have seen dramatic increase eventually passing the burden to the consumer. Prices of cement were as low as Rs160 in December 2002 .In 2003, cement prices ranged between Rs200 and Rs225 per bag depending on brand. In 2005, cement prices ranged between Rs270 and Rs280 a bag. At present, the ex-factory cement prices range between Rs340 and Rs360 per bag whereas the retail prices have gone as high as Rs400 a bag. Steel prices have also increased recently from Rs37,000 to Rs43,000 per ton and this is because the demand for steel is growing at 15-20 per cent annually. If prices of both steel and cement are not stabilized, this will lead to further hike in construction cost since they constitute a significant cost of construction.

Traditionally, Pakistanis buy the commodities such as gold for the wedding ceremonies of their offspring years before to eschew hardships of shopping all the things at the same time. If you plan to purchase gold for the wedding ceremony of your offspring or for any other occasion, be aware that the prices of the commodity have skyrocketed over the period of last six months. It is believed that the prices of gold increased by 16% in the first three months of the current year against the oil prices which increased by 13% during the same period. Gold prices in the international market were $623 per ounce last Thursday and in our local market per ten gram prices were Rs 12702. There are firm chances that if the Iranian nuclear issue is not resolved, which seems to be bolstering the oil prices in the international market, the oil prices will further increase and this will lead to the increase of gold at the same time.

Your per month expenses for the basic commodities were about Rs 5000 a couple of years ago but at present you are spending over Rs 7000, if I am not exaggerating. This is all because prices of almost all commodities with a few exceptions have shot up significantly. Live chicken is available for over Rs 50 per kg even when there are rumours of bird flu virus. White meat is for Rs 70 per kg against the beef which is being sold for around Rs 170 per kg. Well, the prices of vegetables are also in the line of rise. In November last year, prices of potato surged to Rs15 per kg with an increase of one rupee but at present the commodity is being sold for Rs 18 per kg. Tomato prices also increased to Rs20 from Rs12 per kg during the same period.

I know this surge hurts you and millions of other citizens. The price increase phenomenon has become a global problem at the moment so one should look at the other side as well. We have heard and read a lot about increase in sugar prices in our country and many people have been blamed for this hike in sugar prices also but when I look at the world level I see almost the same rise in prices almost everywhere. Retail sugar prices were Rs 39 per kg last week which was around Rs 23 per kg a couple of months back in our country, and sugar prices surged to 480.0 dollars per ton in London in the beginning of this month which is said to be the highest level since 1989.

Your per month income is Rs 35,000 and you tell me that you are living from hand to mouth. What about those who get just Rs 5,000 per month and support their dependents as well. It is inflation which is hurting the lower and the middle class. In 1994-95, inflation went up to 13 percent. Inflation rate was 8.8 per cent in the first seven months (July 2004-January 2005) against a full year budgetary target of 4.3 per cent and Pakistan saw double-digit inflation at 11 per cent for the second consecutive month in April 2005.

According to Pakistan Economic Survey (2004-05), inflation as measured by the CPI, declined from an average of 9.7 percent in the 1990's to over three decades low of 3.1 percent in 2002-03. This price stability was reflected in the other measures of inflation used in Pakistan, the Wholesale Price Index (WPI) as well as the Sensitive Price Index (SPI). The CPI covers the retail prices of 375 items in 35 major cities and reflects roughly the cost of living in the urban areas. The SPI covers prices of 53 essential items consumed by those households whose monthly income ranges from Rs.3000 to Rs.12000 per month. In most countries, the main focus for assessing inflationary trends is placed on the CPI, because it most closely represents the cost of living. In Pakistan, the main focus is placed on the CPI as a measure of inflation as it is more representative with a wider coverage of 375 items in 71 markets of 35 cities around the country. For the first ten months of the current fiscal year (July 2004 to April 2005), inflation as measured by the Consumer Price Index (CPI), averaged 9.3 percent, compared to 3.9 percent for the corresponding period last year. While food price inflation was recorded at 12.8 percent compared to 4.9 percent for the same period last year, non-food inflation increased to 6.9 percent versus 3.3 percent in the comparable period of last year.

I personally believe that CPI does not give us the real picture of the inflation prevalent in our country. It gives us underestimated picture of the real inflationary rate. Since majority of the population lives in the villages, I don't think that inflation measured by CPI will ever give us the true picture. To me, SPI is more reliable index. At present official inflation rate is 8.4% but if it is measured by SPI, it will give the figure which would be perhaps more than the double of the present rate, I personally believe.

PERIOD

I N D I C E S

PERCENTAGE CHANGE OVER PREVIOUS PERIOD/MONTHS

 

SPI

CPI

WPI

SPI

CPI

WPI

2000-2001

100.00

100.00

100.00

--

--

---

2002-2003

103.37

103.54

102.08

3.37

3.54

2.08

2004-2005

107.06

106.75

107.77

3.58

3.10

5.57

2003-2004

114.38

111.63

116.29

6.83

4.57

7.91

2001-2002

127.59

121.98

124.14

11.55

9.28

6.75

2004-2005 (JUL-MAR)

126.48

120.57

122.48

11.82

9.06

6.79

2005-2006 (JUL-MAR)

134.89

130.52

135.42

6.65

8.25

10.57