Inflation in Pakistan: a cause for serious concern

By M. Shehryar

Recently government has announced the inflation target of 12 per cent in the federal budget for fiscal year 2009. The government’s current year (2007-08) fiscal target for inflation was 6.5 per cent. While according to government figures, the CPI based inflation stood at 11.11 per cent during July’07 to April’08. But if we look at these numbers, we see very alarming trends emerging. The food group is important components of CPI based inflation, so if we keep in mind the 12 per cent target of inflation for next fiscal year and assume that full year inflation will reach at around 12 per cent, we can analyse some important prices of essential items for the upcoming year.

Table-1 shows the prices of some important commodities, chiefly contributing in higher inflation of 11.11 per cent in 10 months of current fiscal year. In column “prices in 2009”, as per estimation the given commodities prices will rise by same rate, as in current fiscal year. And in last column we have assumed that the prices will increase by 12 per cent. (see table-1)

The above table shows the assumption based prices of some important items for fiscal year 2009 and the government has allowed us to calculate these numbers, because of inflation target of 12 per cent.

Government has also announced to cut overall subsidies to Rs.295 bn from Rs.407 bn for upcoming fiscal year and the difference will be consumed for development purposes. Table-2 shows some major changes in subsides. (see table-2)

From July, 01 the electricity charges will be increased up to 30 per cent while government has announced to cut subsidies on oil products to Rs.140 bn from Rs.175 bn.

That will directly hurt the consumer because traditionally, whenever government imposes taxes and cuts down subsidies to industries, all burden goes down to consumers specially the low income group who are directly affected by the price hikes.

Also, the increase in GST to 16 per cent from 15 per cent will trigger inflation to rise by more than the targeted rate of 12per cent.

As the government has increased subsidies on the sales of flour, ghee and sugar at utility stores and announced some relief packages for common men in next fiscal year budget, it is hoped that it will not take great deal of hard work on government part to remain in the range of loosely targeted rate of 12 per cent.

The international phenomenon to set the GDP and inflation target is that the target is always set below the GDP target while in this budget, economic managers unpredictably have set the inflation target as 12 per cent well above the GDP target of 5.5 per cent.

Taking all these factors into consideration one thing is sure; the upcoming fiscal year will prove tough for common man in terms of inflation.

Table-1

Item    Unit    Prices in 2009 If prices increase

                             by 12per cent then 

Tea     250 gm          91.26  88.48  

Veg Ghee       2.5 ltr  655.88 429.35  

Rice Basmati Broken  kg       129.14 61.19  

Cooking Oil 2.5         ltr       677.77 436.87  

Red Chillies     kg       409.48 220.51  

Masoor Pulse  kg       276.63 124.32  

Petrol  ltr       87.25  78.29  

Diesel  ltr       65.78  56.29

Source: 2007-08 prices FBS 2009 prices: Self-estimations

Table-2

Classification  (Rs bn)          Budget 07-08 Budget 08-09

          (%)     (%)

WAPDA          113     74      (34.51)

KESC   19.5    13.8    (29.23)

Import of Wheat       40      20      (50.00)

Import of Sugar        6.5     6.3     (3.08)

Ghee Packaged in USC         1.2     1.5     25.00 

Sales of Pulses USC   0.2     0.5     150.00 

Sales of Atta  0.2     0.5     150.00 

Oil Refineries/OMCs/Others   175     140     (20.00)

Source: Budgetary Document 2008-09

Source: the News, 14/7/2008

2 Comments

  1. Syed Rizvi

    Hi,
    Can any of financial amalyst inform me the average annual inflation rate for the year 2008 – 2009.
    So is required as to fix on the annual increment amount of my company.

    Rgds

Leave a Reply