INFLATION IN FY08

MULAZIM ALI
PAGE Research
Jan 07 - 13, 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).

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.

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

The Consumer Price Index (CPI) marked a 7.8% for the last five months July-Nov (FY-08); shading 45 basis points to 8.3% registered during the corresponding period of last year and showing no change to the last month Oct-07. The food inflation scored double digit with 11.5% a 130 basis points higher than 10.2% in the analogous period last year and the non-food inflation declined by 180 basis points with 5.2% while it was 7% last year for the same period.

The aggressive indices behavior from upper to lower income group show higher price burden born by the lower income group people increases number of problems and poverty level. YOY indices change is also witness that the prices of the daily necessity item are increasing in the country day by day. This is not healthy for a growing economy with majority of people in crisis.

WEEKLY INFLATION TRENDS

The latest weekly Sensitive Price Index (SPI) available till Dec' 19th 2007 are bare witness to the fact that the inflation is taking a new momentum towards north. The week marked SPI for low income group (LIG) at 172.36 cumulating a 9.51% increase over 157.4 points for the corresponding week last year and 0.15% increase over last week.

While the last week ending Dec.13th 2007 witnessed wow increase of 0.93% with 172.11 points on SPI and manifested 8.83% hike over the Corresponding periods figure of 158.0 points last year.

SPI (SENSITIVE PRICE INDEX)

PERCENTAGE CHANGE

INCOME GROUP

DEC 19' 07

DEC 13' 07

DEC 13' 07
(W-O-W)

DEC 21' 06 (Y-O-Y)

Upto Rs. 3000

172.36

172.11

0.15

12.24

Rs. 3001-5000

170.81

170.51

0.18

11.98

Rs. 5001-12000

168.36

168.01

0.21

10.76

Above Rs. 12000

165.43

165.07

0.22

7.30

Combined

165.64

165.34

0.18

9.51

SPI (53 items) 2000-2001 = 100

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 may now again increase due to the augmenting oil prices and political crisis in the country.

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 aggravate in coming periods.