INFLATIONARY PRESSURES

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Mar 21 - 27, 2011

The world economy experienced a slowdown during 2010. Domestic demand in the major advanced economies remained weak as consumer spending continued to tapper off. Emerging economies recorded growths driven by both their domestic demand and their exports, although in some cases there appeared signs of deceleration.

CPI, WPI, SPI INDICES (%)

PERIOD CPI SPI WPI
2001-02 3.54 3.37 2.08
2002-03 3.10 3.58 5.57
2003-04 4.57 6.83 7.91
2004-05 9.28 11.55 6.75
2005-06 7.92 7.02 10.10
2006-07 7.77 10.82 6.94
2007-08 12.00 16.81 16.41
2008-09 20.77 23.41 18.19
2009-10 11.73 13.32 12.63
2009-10 (Jul-Feb) 11.08 11.84 8.66
2010-11 (Jul-Feb) 14.33 18.88 22.64

In this context, the global economic recovery is expected to moderate its pace in the next quarters. World inflation remained at low levels throughout the third quarter of the year. The major advanced economies registered low levels of consumer inflation and in some cases, the concern about the possibility of deflation increased. In the expectation of lower growth, the central banks of the major economies reasserted their decision to maintain their policy rates at low levels and expressed their disposition to take additional measures for monetary easing.

In contrast, some emerging economies, including Pakistan, registered higher inflation levels, in some cases as a consequence of demand pressures and in others due to the increased international grain prices. The threat of inflation is on the minds of businesses and consumers alike, with the depreciation of the Pak rupees signifying a fall in buying power for Pakistanis.

In July-February 2010-11, CPI, SPI & WPI increased over the same period of 2009-10 by 14.33 per cent, 18.88 per cent and 22.64 per cent, respectively. In July to February 2010 CPI, SPI and WPI had increased over same period 2008-09 by 11.08 per cent, 11.84 per cent and 8.66 per cent, respectively. The inflation rates based on CPI, SPI & WPI in July to February 2010-11 were lower as compared to 2008-09 but were higher as compared to 2009-10.

However, the prices of some essential items on the Karachi wholesale commodity markets last week showed tendency to rise from the current levels as their demand, mainly from the private sector exporters, picked up to cover their forward sales. Barring an increase of Rs20 per maund in the price of sugar and Rs40-50 in IRRI-6 rice, prices of most essential items finally settled around previous levels after mid-week erratic movement led by conflicting reports of supply position and arrivals from upcountry trading centres.

While, over half million tons of wheat has been exported during the last month, and the figure is expected to touch the mark of a million tons during the next upcoming weeks. The prices of wheat remained stable around previous levels as some local private sector wheat exporters covered their forward positions to maintain shipment deadlines. The activity on the rice front was also maintained at a steady pace, as exporters remained active in their covering operations even at higher prices to meet their shipment deadlines.

Prices of coarse type rice remained on the higher side owing to pressure on ready supplies, but there were no reports of shipment delays on the part of any exporter. Sugar prices recovered from the last two weeks' persistent fall as supplies from mills showed some decline and retailers increased the prices. The rise in sugar prices was modest that too at the wholesale level but there was no change in the ready section at the retailers end.

On the other side, prices of pulses remained steady and did not show much change despite reports of fresh arrivals of imported stuff from various sources.

The cereal sector showed sharp rise last week, remained dormant this week as prices of most items were held at the last levels amid active ready demand from local consumers. Moreover, cotton was a bit disturbing as the local prices after having fallen to Rs11,800 per maund again started to rise during the week and were quoted at Rs12,800.

UNEMPLOYMENT RATE (%)

. 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
World 6.3 6.2 6.0 5.7 6.0 6.1
South Asia 5.3 5.4 5.3 5.3 5.4 5.4
Pakistan 8.3 7.7 7.6 6.2 5.2 5.5

Major oilseeds including castor seed were traded around the previous levels followed by fall in both local and foreign demands. Rapeseed was quoted higher by Rs60 per maund on reports of active local buying. More recently, Karachi dairy farmers association has increased Rs8 in the price of one litre of fresh milk. Association also said that the price was increased in view of the fact that during the past two months the price of a buffalo had risen from Rs80,000 to Rs150,000. While, the retail price of per litre milk would be Rs70. In November 2010, the price of fresh milk was increased to Rs60 from Rs56 per litre. Yogurt is presently available at Rs80 per kilogram and its price may go up to Rs88 or Rs 90 per kilo.

CONCLUSION

Devastating floods in July 2010 have exacerbated economic downturn and inflationary pressures in Pakistan that is distressed by security risks, infrastructure bottlenecks, low tax revenues, high defense and subsidy spending, tight economic policies and delayed delivery of an IMF loan and foreign aids.