Inflation at 3-decade high, CPI 12% and SPI 22%

[Naveed Yaseen]

* Annual inflation 84.6% higher than target
* Average SPI, WPI spiked by 16.81%, 16.41%

By Muhammad Yasir
KARACHI: Constant rise in energy and food prices have fueled inflation to sky limits, as it touches three decade high of 21.53 percent in June 2008 compared with the same month a year earlier.

The government’s target controlling inflation rate at 6.5 percent for the fiscal year 2007-08 could not be achieved, likewise other targets such as GDP growth rate and trade deficit crossed the limits to set poles a part at 12 percent at the closing of the year over corresponding year.

Consumer Price Index (CPI), Sensitive Price Index (SPI) and Wholesale Price Index (WPI) for the year 2007-08 have increased by 12 percent, 16.81 percent and 16.41 percent respectively over the corresponding period of 2006-07. It increased by 7.77 percent, 10.82 percent and 6.94 percent respectively in 2006-07.

This year’s inflation started with 6.4 percent in July 2007, but grew with momentously reaching the peak of 21.53 percent at the closing of the year in June 2008.

Similarly, food inflation having 40 percent weightage in CPI basket also began the year at 8.5 percent but it also shoot up sharply to 32.05 percent, which was highest increase since 1974-75 when it touched 27.8 percent.

Economists believed the higher global prices of food, fuel and other commodities driven by a weaker rupee, import costs and gradual removal of fuel, food and power subsidies and monetary overhang on account of excessive borrowing from the SBP to finance the fiscal deficit have been major factors in pushing the prices to new highs during the current fiscal.

The ruling government had already hinted in the Economic Survey released in June 2008 that average inflation was settling over 11 percent by the end of financial year 2007-08.

The latest Economic Survey predicted that these factors would continue to exert pressure on overall prices in the next two to three years. The longer the high inflationary pressure persists, the greater is the chance for wage-price spiral to gain firm hold.

Dr Shahid Hasan Siddiqi was of the view that inflation would record further high in the coming months as the impact of rising food and fuel prices, utility charges and depreciation of rupees took their toll on the economy.

“The General Sales Tax (GST) has increased to 16 percent from 15 percent, subsidies have been deduced more than Rs 100 billion for the new fiscal year 2008-09, natural gas have been increased by 31 percent while increase in electricity charges was on the cards, thus this factor would lead to add massive numbers in the new financial year’s inflation rate”, he said.

He said, “the inflation will increase much more percent as compared to set 12 percent inflation rate for 2008-09.”

Pakistan is the only country in South Asia, which is facing deficit of budget, current account deficit coupled with high core and food inflation rate.

So blaming to external factor of rising food and oil prices are not true, he said and added, “the turmoil in economy is also cause on the poor planning of existing government.”

Mr Siddiqi said the impact of rising inflation would hit more hard and a massive number of population was forced to go beneath the poverty line.

Data released by the Federal Bureau of Statistics (FBS) Friday showed that food inflation, measured through the CPI, swelled to record 32.05 percent in June 2008, highest in over three decades.

In the food basket, price of non-perishable food items witnessed an increase of 35.39 percent and perishable items 9.59 percent in the June.

The food items including rice, onions, potatoes, besan, pulse gram, pulse masoor, maida, sugar, gur, wheat flour, pulse moong, beverages, gram whole, fresh fruits, cereals, wheat, readymade food, spices, mustard oil, sweetmeat and nimco, milk fresh, vegetable ghee, pulse mash, milk products, milk powder etc saw major increase in their prices during June.

The figures show CPI inflation surged by 2.10 percent in June over the proceeding month of May.

The other components of CPI basket also posted substantial increase in the month of June. House rent surged by 12.39 percent, transport and communication by 24.91 percent, medicare by 14.16 percent etc.

SPI also increased to 30.02 percent in June 2008 whereas the WPI surged to 30.62 percent in the month under review.

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