Trends in inflation

Though the latest monthly trend in prices suggests some improvement, the overall inflationary situation in the country continues to be disturbing. The CPI inflation swelled by 10.87 percent during July-December, 2011 over the same period of the previous fiscal as compared to a higher increase of 14.32 percent in the corresponding period of last year and a lower rise of 8.67 percent in 2009-10. Emphasising the severity of the issue, Asif Bajwa, Secretary, at the first media briefing of the newly constituted Pakistan Bureau of Statistics (PBS), stated that headline inflation has been in double-digit since July, 2008, or for the last 42 months. Analysis of the data showed that the prices of items falling in the group of "food and non-alcoholic beverages" soared by 12.23 percent during the first half of FY12. Within this group, the prices of "non-perishable food items" jumped by 14.53 percent and those of "perishable food items" went up by 1.12 percent. The cost of "alcoholic beverages and tobacco" during this period rose by 7.13 percent, "clothing and footwear" by 15.08 percent, "housing, water, electricity and gas fuels" by 7.76 percent, "furnishing, household equipment and maintenance" by 15.81 percent, health by 11.43 percent, transport by 14.13 percent, education by 12.93 percent and "restaurants and hotels" by 17.14 percent. Measured by the monthly trend and year-on-year basis, there was some deceleration in inflationary trends. The CPI during December, 2011 decreased by 0.7 percent as compared to an increase of 0.3 percent in the previous month and a fall of 0.3 percent in the same month a year earlier. Its level during December, 2011 also showed a smaller increase of 9.75 percent over December, 2010 as compared to the much larger rise of 15.45 percent in the corresponding period last year. However, it may be mentioned that changes in fuel adjustment charges were not included in the CPI. Answering to a question, Bajwa acknowledged that "we need to put in place a system to capture the fuel adjustment charges in the CPI because of its growing weight in the electricity cost." Although the rate of inflation as measured by the Consumer Price Index would seem to have moderated during the first half of FY12 to a certain extent, yet its persistence at such a high rate is certainly a source of great concern. The erosion of purchasing power of nominal incomes by such a high magnitude is not only highly unfair for ordinary people but could depress saving and investment in the country and thus have negative repercussions for the growth of the economy. In particular, one could easily visualise the miseries of the poor who spend most of their incomes on food items and face dwindling prospects of employment in a stagnant economy. Since the rate of inflation in the country is much higher than the rest of the world, the exchange rate of the rupee is bound to depreciate and the external sector of the country is likely to come under greater pressure. Unfortunately, the policies that could soften the price pressures are also not being followed properly by the government due mainly to stiff political resistance and continued lobbying by vested interests. The budget deficit for example, is expected to be much larger than the original estimates and most of it is likely to be financed by the banking system which would fuel inflation. Inflationary pressures are likely to be accentuated further by inert growth of the economy resulting in lower availabilities in the domestic market and loss of value of the Pak currency in the coming months. Increase in the domestic prices of oil, upward adjustment in electricity and gas tariffs and their acute shortage would also have an adverse impact on prices. Obviously, all these negative factors would continue to intensify inflationary pressures in the economy and make the lives of the ordinary people more painful. Although there are lots of constraints, yet the government can at least make a modest beginning by devising a proper policy framework in consultation with the opposition parties and lowering the political temperature in the country. For instance, all the political parties could reach an agreement to contain the budget deficit within the stipulated limits and restrain from agitational politics on the agreed measures to achieve the fiscal target. Also, the government itself needs to refrain from using a support price mechanism of agricultural commodities and incurring heavy expenditures on sub-optimal projects for political expediency. Besides, all the parties must agree on a proper strategy on a war footing to improve energy supplies in the country. We are afraid that if appropriate measures are not adopted to address such critical issues, inflationary pressures would continue to jolt the economy and haunt the common man. Copyright Business Recorder, 2012