Price inflation is caused by: Declining economic growth Lack of expansionary policies Output setbacks Higher taxes A depreciation of the value of rupeeMore than 11 percent inflation rate per annum recorded
The State Bank of Pakistan (SBP)’s inflation target of 5 percento In light of Pakistan’s growth performanceo Empirical thresholds beyond which inflation harms growthand financial development. Objective of the State Bank of Pakistan (SBP) should be pricestability. State Bank of Pakistan (SBP) should first and foremost focus itsattention and policies to keep inflation close to its target of 5percent
•Inflation was reduced to below 5percent by 2000and remainedstable through 2003.o Tight monetary policy and fiscal consolidation•High growth rates from 2000-2008•High oil prices and food inflation•Recession in world economies•Record floods in July-August 2010 lowered agricultural outputand contributed to a jump in inflation.
Current Challenges An impoverished and under developed country. Suffered from decades of internal political disputes. Low levels of foreign investment. It is the top concern among the public, climbing from 7.7% in2007 to more than 13% in 2010. Pakistani rupee depreciated since 2007 as a result of politicaland economic instability.
Price IndicesPakistan publishes four different price indices– the consumer price index (CPI)– the wholesale price index (WPI)– the sensitive price index (SPI)– the GDP deflator
Consumer Price Index The main measure of price changes at the retail level indicates the cost of purchasing a representative fixed basketof goods and services consumed by private households. In Pakistan, the CPI covers the retail prices of 374 items in 35major cities and reflects roughly the changes in the cost ofliving of urban areas
Whole Sale Price Index Designed for those items which are mostly consumable indaily life on the primary and secondary level These prices are collected from wholesale markets as well asfrom mills at organized wholesale market level It covers the wholesale price of 106 commodities prevailing in18 major cities of Pakistan
Sensitive Price Index The weekly change of price of 53 selected items of daily useconsumed by those households whose monthly income in thebase year 2000-01 ranged from Rs3000 to above Rs12000 permonth Informs about the actual position of supply: whether thecommodity is available in market or not
The inflation rate as measured by the changes in ConsumerPrice Index (CPI) stood at 10.8 percent during (July-April)during current fiscal year 2011-12, against 13.8 percent in thecomparable period of last year. The Wholesale Price Index (WPI) during July-April, 2011-12on annual average basis has recorded at 11.2 percent against21.0 percent last year. The Sensitive Price Indicator (SPI) recorded at 8.5 percentduring July-April, 2011-12 against 18.1 percent of last year.
Base Year: The Pakistan Bureau of Statistics (PBS) has changed the baseyear of the price indices from 2000-01 to 2007-08.Measures of inflation:Consumer Price Index (CPI) The old basket of commodities in the CPI has been revisedand the commodities increased from 374 to 487 items and thecommodity groups from 10 to12. The coverage of cities has also been increased from 35 to 40. The food group weight has been reduced from 40.3 percent to34.8 percent
21 items in the old basket have been dropped while 111 newitems have been addedWholesale Price Index (WPI) The basket of goods that makes up the WPI has also been revised. In the current series of WPI, items are categorized into fivecommodity groups namely:(i) food products, beverages and tobacco, textiles, apparel and leatherproducts(ii) agriculture forestry and fishery products(iii) ores and minerals, electricity gas and water
(iv) other transportable goods except metal products, machineryand equipment(v) metal product machinery and equipment. . A set of 463 items have been selected instead of 425 items toaccommodate changes in the production and sales ofcommodities in the wholesale market in 21 major citiesinstead of 18.Sensitive Price Indicator (SPI) The SPI indicates the weekly change of prices of 53 selecteditems of daily use prevailing in 17 major cities. Whose monthly income ranges from Rs. 8,000 to Rs. 35,000per month.
Causes of Inflation The year 2011-12 (Jul-Apr) witnessed both demand pull and costpush inflation. inflation when viewed in the backdrop of the affects of the floods of2010and heavy rains in 2011. which almost wiped out the major and minor standing crops in Sindhprovince, created disruption in the supply chain which resulted insurging inflation. The global spikes in commodities and fuel prices also exertedpressure on domestic inflation. Devaluation of Money.
Inflation on year to year basis reveals that the CPI was highestin July 2011 at 12.4 percent. However, in December 2011 itdeclined to single digit at 9.7 percent. Thereafter it increasedsteadily and reached 11.3 percent in April 2012. Food inflation ona year to year basis was highest in July 2011 and lowest inJanuary 2012 at 9.2 percent. Nonfood inflation was lowest in July2011 at 9.2 percent and highest at 11.6 percent in April 2012.
Price Stabilization Measures The government is focused to restrict inflation to 12 percent duringthe current fiscal year 2012. Different policy measures have been taken to deal with food andfuel price hikes and to contain the inflation through monetarypolicy. Given that the average inflation for (Jul-Apr) 2011-12 was 10.84percent and in view of the international food and fuel price trend thegovernment is keeping a close watch on the movement of pricetrend through weekly ECC and Cabinet Meetings. The State Bank of Pakistan continued to keep money supply on atight leash.
However, inflation has been contained during current fiscalyear as compared to last year due to tight monetary policy, bettersupply management and regular monitoring of prices and supplychain by the Cabinet and National Price Monitoring Committee.
The government is focusing on restricting inflation to 12 percentduring the current fiscal year 2011-12. The current trend of inflationreported during the first 10 months Jul-Apr 2011-12 suggests thatinflation has been stabilized on account of pursuing tight monetarypolicy and declining trend in global commodity prices. Inflation islikely to further decelerate gradually over the next few months, asbetter crops production and better management of supply chain maybring price stability in the country. The decline in inflation maycontinue further by falling global commodity prices and stepstowards fiscal consolidation to contain inflation. However, longterm solutions lie increase in agricultural investment; strong marketintegration; and, regional cooperation to secure food supplies for thecountry’s growing population.
Inflation is one of the obstacles on the way of development. InPakistan, it has squeezed the major part of the population. It needsto be controlled by strategic planning. Domestic production shouldbe encouraged instead of imports; investment should be givenpreference in consumer goods instead of luxuries, Agriculture sectorshould be given subsidies, foreign investment should be attracted,and developed countries should be requested for financial andmanagerial assistance. And lastly a strong monitoring system shouldbe established on different levels in order to have a sound evaluationof the process at every stage.