Inflation reaches 8.73 percent in September

Besides skyrocketing food stuff prices, increasing medical expenses are inflicting 'a body blow to millions of Pakistanis living on fixed income', as during September 2006, its (Medicare) prices leaped to 9.77 percent from 7.89 percent a month earlier.
Increasing expenses on education is another head of CPI basket which, during September, jumped to 7.16 percent from 6.25 percent in the same month last fiscal year. Within a month, its prices increase by 1.31 percent, affecting adversely the low-income citizens.
If the current rising trend persists, it would dampen government's efforts at achieving high literacy rate and ultimately Millennium Development Goals (MDGs).
It is important to note that general inflation measured by the Consumer Price Index (CPI) has touched 8.73 percent in September this year due to continuous increase in prices of food items, fuel and lighting, house rent, Medicare and education expenses over the corresponding month of last year.
The rising inflation-particularly of food items-is also becoming a nightmare for economic managers which, (food inflation) during September 2006, leaped to double digits (11.26 percent) from 11.08 percent a month earlier and 7.44 percent in July; thus snatching the purchasing power of the low-income group.
Food inflation, having more than 40 percent weightage in the CPI basket, unevenly affecting the purchasing power of low-income group, increased by 0.14 percent in September over previous month and 2.24 percent during August 2006 over previous month (July). This surging trend is a serious challenge for the government.
Majority of population consists of low- and middle-income groups and it always suffered most by the increasing food inflation. Whenever price of food basket goes up, it hits these groups and squeezes their purchasing power.
The Federal Bureau of Statistics (FBS) data reveals during 2005-06, average annualised CPI inflation was 7.92 percent and food inflation, 6.92 percent. While in the first quarter (July-September) of 2006-07, the average general inflation rose to 8.43 percent with food inflation more than nine percent.
It was at 8.73 percent (food inflation 11.26 percent) during September of this fiscal year, indicating that inflation is again on the rise and is still a potential threat to the economy.
The house rent also increased by 7.28 percent over the corresponding month of last fiscal year. The government statistics, however, showed that the house rent was constantly on the rise during the last seven months. The house rent rose by 0.42 percent in March 2006, 0.62 percent in April, 0.60 percent in May, 0.52 percent in June, 0.54 percent in July, 0.55 percent in August and 0.56 percent in September 2006 over the previous months.
However, the government remained silent about this phenomenal increase, which would have serious implications on the monthly budget of the low-income and middle-class people.
Though, the government has tightened its monetary policy in July, the SBP toughened its stance by raising its policy rate (the 3-day repo rate, which is its rediscount rate) from 9 to 9.5 percent, and adjusted upward both the banks' cash-reserve requirement ratio and their statutory liquidity requirement ratio, yet the accommodative monetary policy prevailed for the last few years would have a boosting effect on inflation.
The prices of all groups of the CPI basket also increased significantly in one month. These include: Medicare increased by 2.06 percent, education by 1.31 percent, household, furniture and equipment by 0.65 percent, house rent by 0.56 percent, transport and communication by 0.20 percent, and fuel and lighting prices increased by 0.16 percent over August 2006.
The FBS data reveals for several months, prices of some necessary goods and services such as food, house rent, transport and communication shot up significantly.
Economists opined that inflation should range between 7-8 percent, but it is likely to go up if the present upward trend in prices continued. At the moment, officials look quite helpless in controlling the abruptly surging trend in commodity prices.
It is also important to note all multilateral donor agencies, including the Asian Development Bank (ADB) and the World Bank have sounded concern time and again over high inflation in the country. They are expressing fear the inflationary and external pressures are expected to stay over and above the laid down targets for FY2006-07.
Experts analyses show that Pakistan would face two main challenges-burgeoning current account deficit fuelled by oil import and soaring inflation-which, they say, would hover around eight percent or slightly cross it at the end of the financial year despite good economic indicators. They say it would in turn affect prices of food and beverages, transport and communication and house rents.
In such circumstances, it has become hard for economic managers to tame inflation. They also look helpless in controlling prices of petroleum products, house rent, transport and communication, sugar, wheat and other edible items. It is obvious rise in petroleum prices will have a multiplier effect on a large number of items.