It is little worrying that the rate of inflation has started inching up recently. According to the latest data released by the Pakistan Bureau of Statistics, annual inflation increased by 3.9 percent in September, 2016 from 3.6 percent in the preceding month. The inflation index (CPI) also rose by 0.2 percent on monthly basis in September, 2016 in sharp contrast to a decrease of 0.3 percent in August, 2016 and 0.1 percent in September, 2015. The average inflation in the first quarter of FY17 (July-September, 2016) stood higher at 3.86 percent as compared to 1.66 percent in the same period last year. The index of food group, which has a weight of 37 percent in the CPI basket, rose by 4.0 percent in September, 2016 over the corresponding month last year on the back of increase in prices of both perishable and non-perishable food items. The food items whose prices increased included onions, eggs, fresh vegetables, gur and potatoes. On a month-on-month basis, food inflation also soared by 0.1 percent due mainly to 1.9 percent increase in prices of perishable items. Core inflation measured by excluding volatile food and energy prices, was recorded at 4.8 percent in September, 2016, slightly up from the previous month. Inflation had remained in check since November last year due mainly to a reduction in food and fuel prices.
It may be mentioned that the data on inflation, contrary to popular perception in the country, is a reasonable indicator of price changes in the country. The most recognised measure of price behaviour is the Consumer Price Index (CPI) which tracks prices of nearly 500 commodities every month across the country through reliable sources of the PBS, and without any intervention from the government. Some misunderstanding is sometimes possible because of the difference in the basket of goods and services included in the CPI and those consumed by the individuals. Anyhow, the latest uptrend in prices should be a cause of concern for the policymakers as it could have a negative impact on the lives of ordinary people and the poor who spend a large part of their incomes on food items and are already surviving on the margin. Their miseries could compound because of lack of employment opportunities in the market and low wages. The government will also be the loser as comparatively higher rate of inflation would constrain the monetary authority to tighten the monetary policy, putting more pressure on the budget. Another sad aspect is that the present level of inflation is not likely to abate in the near future. Prices of petroleum products are likely to increase due to the latest consensus in the OPEC to limit oil output levels. Since most of these products are imported, the government will be forced to increase their domestic prices, leading to an overall price increase in the country. The current account balance of the country could also aggravate further and the Pak rupee which is already overvalued in the market would tend to depreciate, putting more pressure on the rate of inflation.
However, it may be mentioned that we are not over-reacting to the unfolding price behaviour but merely cautioning the government. As it is, the price situation is still very much under control and the inflation target of 6 percent for the current fiscal year is within reach. A further stability in prices could only be guaranteed if fiscal position of the government is improved further, borrowings from the banking system are kept lower, availabilities in the economy are improved, monetary policy stance is adjusted properly and current account deficit is narrowed to reduce the possibility of major depreciation of the Pak rupee. We will urge upon the government to take appropriate and timely measures to keep the inflation rate in check through proper policy interventions which may appear to be unpopular. Stability in the price level would not only be welcomed by all and sundry but will also stand in good stead to the government in the 2018 elections.