Fiscal stress: Inflation climbs further in March

Consumer price index recorded at 13.6% in the previous month.

KARACHI:

Inflation in the country went up by 13.6 per cent in March, compared with the corresponding period last year, as measured by the consumer price index (CPI).

The Federal Bureau of Statistics (FBS) showed on Wednesday that prices have gone up by 1.48 per cent compared with February, according to the same measure.

The data also showed that prices paid by consumers for various products are unlikely to experience any respite, as the wholesale price index (WPI) has registered an increase of 25.41 per cent in the outgoing month against the same period last month. A monthly comparison of wholesale prices has also shown inflation of 3.34 per cent over the preceding month.

Despite the strict monetary policy stance adopted by the State Bank of Pakistan (SBP), inflation measured by the CPI increased in March, compared with the 12.91 per cent year-on-year tally for February. SBP has itself warned that the trend of rising prices is likely to worsen with inflation reaching 15 per cent by the end of the current fiscal year.

“There is no surprise here – it will be interesting to see how fuel, food and commodity prices play out, especially since international prices are rising,” said Invest and Finance Securities Director Khalid Iqbal Siddiqui. International prices of crude oil have persistently been above $100 per barrel, and analysts expect this trend to continue in presence of unrest in the Middle East. Demand for oil is also expected to be driven up by Japan’s reliance on thermal power until the country’s nuclear power plants resume energy generation.

“Any increases in the international prices of oil and petroleum products will have to be passed on to the final consumer by the government,” commented an analyst.

He explained that given the alarming levels of debt already taken on by the government, it is imperative that fuel prices are not subsidised further if international prices of crude oil continue to rally.

“It seems like not just Pakistan, but the entire world is in for a cycle of high inflation as international oil and commodity prices are on the rise,” commented Sayem Ali, an economist at Standard Chartered Limited. However economists highlight that given the high level of unemployment and poverty in the country, large portions of the population may face severe economic crises.

Businesses in the country have also felt the pinch due to constantly rising prices. “The price of paper increased by 17 per cent in February,” informed Tabish Hashmi, who handles the supply chain for a consumer goods company. “Despite that rise, they went up by another 22 per cent in the following month, and we already have suppliers talking about further price revisions,” he added.

Hashmi said frequent price increases hurt margins for companies, as retail prices of all products cannot be changed every month. The textile sector, the country’s largest industry, has also been hit hard by rising commodity prices. “Cotton rates have rocketed to three times the level they were at just over a year ago,” said Aifaz Textiles Director Amin Sakhia.

Sakhia asserted that due to persisting inflation, many medium and small textile units have had to further limit their output or shut down completely. Experts expect the trend of rising prices to persist, and highlight the importance of support programmes in order to protect the most vulnerable groups from the effects of inflation.

Published in The Express Tribune, April 7^th, 2011.