The latest price indices reveal that inflation continues to be at a low level. According to the latest statistics issued by the Pakistan Bureau of Statistics (PBS) on 2nd April, 2018, inflation as measured by the Consumer Price Index (CPI) decreased to 3.2 percent in March, 2018, from 3.8 percent in the previous month following a drop in the prices of perishable food items and food and non-alcoholic beverages. The data showed that food and non-alcoholic group indices eased to 228.39 in March, 2018 from 229.23 in the previous month while perishable food items' indices dropped from 221.02 in February, 2018 to 212.61 in March. Food items whose prices declined substantially included tomato (20 percent), onion (19 percent), green chillies (16 percent), potato (8.53 percent), eggs (7.36 percent), gram whole (2.91 percent), spinach (2.27 percent) and pulse masoor (1.81 percent). Sub-index of clothing and footwear rose by 0.31 percent, housing, water, electricity, gas and other fuels by 0.04 percent, furnishing and household equipment maintenance by 0.50 percent and health by 0.31 percent. The cost of transport, however, soared by 1.36 percent as the impact of increase in petroleum prices was passed on to the domestic consumers. Wholesale price inflation was also noted at 3.6 percent in March, 2018, as compared to 4.1 percent a month before and 6.4 percent in March, 2017. Core inflation, measured by excluding volatile food and energy prices, was recorded at 5.8 percent in March, 2018, and has been steadily rising for the past few months. The average inflation in the first nine months (July-March) of 2017-18 was lower at 3.78 percent as compared to 4.01 percent in the corresponding period of last year.
It may be mentioned that the rate of inflation has decelerated for the third consecutive month after it had reached a peak of 4.6 percent during the month of December, 2017. The price situation was also expected to be satisfactory in the coming months. According to the Monetary Policy Statement issued by the State Bank on 30th March, 2018, consumer confidence surveys undertaken by IBA-SBP depict relatively well-anchored inflation expectations. A sticky core inflation along with a moderate outlook of food prices amid abundant grain stocks is expected to contain average inflation well before the FY18 target of 6.0 percent and close to it for FY19.
A significant fall in the rate of inflation and expectations of price stability in the next fiscal year constitute indeed a very welcome development. Such a trend would provide a measure of relief to the common people as one of their source of misery (high inflation) and subsequent erosion in purchasing power of money income will be alleviated to a certain extent. The easing of price pressures would also help stabilise exchange rate of the rupee and allow a wider space for monetary policy formulation. Stability in the rate of inflation, say at around 5 percent per annum, would also give the necessary confidence to savers and investors, which is crucial for improving the growth prospects of the economy. Foreign investors would also feel comfortable with the present rate of inflation.
Although softening of the price pressures is a pleasant development, the continuation of this trend cannot be taken for granted. For instance, prices of food items, especially those of perishable items, could soar again when the supply situation is not that satisfactory. Similarly, the prices of petroleum products have to be raised in the domestic market when international prices surge again. The most potent factor pushing up the inflation rate in Pakistan has usually been the widening fiscal deficit and the government's increasing resort to printing more currency note to finance this deficit. The current account deficit has also to be narrowed down to reduce the chances of further depreciation of the rupee with a view to ensuring stability in prices. In short, the authorities of the country need to be very watchful and adopt appropriate policies in time to save the country from the scourge of high inflation on a lasting basis.