Inflation touches 20-month low

[LahoreEstate]

Overall inflation, which had peaked at over 35 per cent in October 2008 on the back of soaring food prices, has now eased to 10.59 per cent in August 2009. — Photo by Reuters

ISLAMABAD: Inflation eased to a 20-month low in August owing to slight improvement in supply of essential food items giving further cushion to the State Bank of Pakistan to consider a cut in interest rates for the third time to kick up the decelerating economic growth.

The inflation measured through consumer price index (CPI) dropped to 10.69 per cent in August 2009 after edging up 11.2 per cent in July 2009, showed data of the Federal Bureau of Statistics (FBS) released on Thursday.

The downward trend in inflation had started since October 2008, after touching an all-time high of over 25 per cent.

The government has projected 9.5 per cent annual inflation target for 2009-10 but due to rising oil prices on international market would overshoot the target.

Another encouraging trend in the inflation basket is the lowering trend in core-inflation which dropped to 12.6 per cent in August from 14 per cent in July 2009, which is healthy sign to give further room to the central bank to consider further cut in interest rates.

Owing to the downward trend in the core-inflation, SBP Governor Salim Raza on August 15 lowered the benchmark discount rate by 100 basis points to 13 per cent.

Earlier, Mr Raza had slashed the policy rate in April last for the first time since 2002, reducing borrowing costs to 14 per cent from 15 per cent.

The trend showed that the central bank is expected to reduce further the benchmark rate as the core-inflation has started downward trend after reaching 18.9 per cent the highest ever in the recent past.

The core inflation is also rising on account of surging house rent and sub-indices related to medical care. The house index rent rose by 17.55 per cent and medical care cost by 6.04 per cent.

The overall inflation – hiked by food prices – which had peaked at over 35 per cent in October 2008 has now eased to 10.59 per cent in August 2009. The food inflation has eased owing to availability of wheat and other commodities in the market.

In the food basket, price of non-perishable food items witnessed an increase of 17.27 per cent and perishable items 9.65 per cent in the month under review.

The fuel and lightening price witnessed an increase of 13.19 per cent during August 2009 over August 2008.

The wholesale price index (WPI), the most commonly used measure to monitor the cost of production, rose by 0.26 per cent in August 2009 as against 35.73 per cent last year.

The inflation measured through the sensitive price index rose 9.03 per cent in August as against 33.85 per cent last year.

http://www.dawn.com/wps/wcm/connect/dawn...ow--szh-08