INFLATION IN YEAR FY-08

MULAZIM ALI KHOKHAR
Research Analyst
, PAGE

Apr 21 - 27, 2008

Inflation rates have mostly remained higher than the economic growth in Pakistan which has translated into class society with grave differences in the standards of living. This Government of Pakistan has been taking arduous stances in the near past to control it by subsidizing heavily the oil and agriculture sector and enforcing tight monetary policies, but everything seems fruitless as the inflation still appears on the hike. Government has failed to control inflation as it has not taken satisfactory measure to control the causes of inflation like:

* Hoarding and other such unethical profiteering by the traders.

* Higher indirect taxes, translate into price ramble and ultimately born by the consumer (i.e. majority of poor people).

* Increasing trends of financing to middle-man which adds up to the ultimate price.

* Lower increase in the incomes of people proportionate to increase inflation.

* Higher unemployment rates translating into higher demand, higher inflation and higher burden on those employed members of the society and family.

Along with all these another cause of inflation is the hiking oil prices in the world which have compelled Pakistan to increase the domestic oil prices.

The most disturbing factor, the mother of all ills in the Pakistani economy today, is the political turmoil and standout for the last one year. Every thing has been shuffled haphazardly by the previous Government and especially power sector distortions, which have brought chaos in the economy and they don't seem vanishing in near future.

Overall for the last 5 years ending FY07 inflation has increased with 5 year CAGR of about 20% and the food inflation with 29%.

The monthly general CPI has marked YOY growth rate of 14.21% in March-2008, while the same period Food inflation has sky rocketed to 20.61% and the Non-Food inflation stands at 6.95%. The wholesale price indices are also flying high at around 20% and Sensitive price index has jumped to 18.6% in March-FY08.

The CPI-Non food inflation is touching 7% while wholesale-non-food inflation is marking 20% hike as compared to same period last year.

If we see average inflation rates during 9 months in FY08 we come to know that the Consumer Price Index has increased on an average rate of 9.18%, Wholesale Price Index on 12.19% and Sensitive Price Index on 11.19% on average.

Also the aggressive indices behaviors for lower income group and especially the food prices hikes show higher price hike burden born by the lower income group people and this increases number of problems and the poverty level. YOY indices change also witness that the prices of the daily necessity item are increasing in the country day by day in the double digit. This inflation trend is not healthy for a growing economy with majority of people in crisis.

WEEKLY INFLATION TRENDS (APRIL 10, 2008)

The latest weekly Sensitive Price Index (SPI) available till April 10th, FY08 are bare witness to the fact that the inflation is accelerating its momentum towards north. The week marked SPI for lowest income group (LIG) at 186.86 cumulating a 12.24% increase over 157.4 points for the corresponding week last year and 1.26% increase over last week.

SPI (53 ITEMS) 2000-2001 = 100

PERCENTAGE CHANGE OVER FROM

INCOME GROUP

SPI FOR WEEK ENDED      APRIL 10, 2008

SPI FOR WEEK ENDED      APRIL 3, 2008

PREVIOUS WEEK I.E. APRIL 3, 2008

CORR. WEEK LAST YEAR APRIL 12, 2007

Up to Rs. 3000

186.86

184.53

1.26

12.24

Rs. 3001-5000

185.3

183.04

1.23

22.72

Rs. 5001-12000

182.27

180.28

1.1

21.3

Above Rs. 12000

180.59

179.26

0.74

18.72

Combined

180.76

179.02

0.97

20.83

While the last week ending April 10, 2008 witnessed W-o-W increase of 0.97% in combined SPI marking 180.76 points on Sensitive Price Index and manifested 20.83% hike over the Corresponding periods last year.

WHAT LAYS A HEAD!

What lays a head seems quite blurred right now but we can only hope that the political situation recuperate and economy will get a positive momentum and the things will normalize.

Overall trends of inflation are on 5 years high as shown in the figure, but the non food inflation has been declining from the last year which is now again increasing due to the augmenting oil prices and political crisis in the country and hiking raw material inflation.

Inflationary pressures are expected to remain strong led by both supply and demand side factors. A depreciating currency, amid rising international commodity prices, would lead to higher imported prices. Further, essential food staples, especially wheat, are constantly climbing high having a knock-on impact on many processed food items. Lastly, an increase in local energy prices has triggered a new round of price hikes in the country which may also aggravate in coming periods. The scenario from this point in time is quite distorted and it will normalize at least not in this Fiscal Year ending June-2008.