ST increase, reduction in fuel subsidies: inflation trend shows combined impact

The present trend of inflation has the combined impact of an increase in sales tax from 16 to 17 percent and a reduction in subsidies on fuel and electricity prices, according to the Economic Survey released on Monday.
The outlook suggests that since the impact of adjustment has already been realised and further stability and appreciation of Pak Rupee will mitigate any increasing trend in global commodity and fuel prices; these would help in easing the inflationary pressure and this trend will further help in bringing it closer to the inflation target.
The survey noted that inflation increased in November 2013 to 10.9 percent on account of an adjustment in electricity prices combined with a short-term supply disruption of commodities due to cyclical factors. Inflationary pressures have tapered since December 2013: headline inflation CPI declined to 7.9 percent in January and February 2014. However, it again surged in March and April 2014 at 8.5 percent and 9.2 percent, respectively.
Following government's better monetary policies, including containing budget deficit and expenditures, helped in controlling inflation within a reasonable limit at averaged 8.7 percent during the fiscal year 2013-14, revelled says the Economic Survey. The Survey maintains that the IMF in its third review had also scaled down projected inflation from 10 percent to 9.5 percent by end June and 8.8 by end period. Food inflation has emerged as the main contributor to recent inflation in the country.
The survey further shows that the government has been using a wide range of price stabilisation measures such as liberalising imports, introducing reforms to increase agricultural product, improvement in market mechanisms and intervention in the market through organisations such as Utility Stores Corporation and Trading Corporation of Pakistan.