Analysis: Double-digit inflation to persist for record fifth year
Consumer price index expected to stand at 12% in fiscal 2012.
KARACHI:
Inflation provides an important insight on the state of the economy and policies that govern it. Stable inflation not only provides impetus for economic growth, but also helps uplift vulnerable strata of society. Pakistan, in recent years has been in the grip of high inflation, which amongst other things has adversely affected the economic health of the country, according to a Topline Securities research note.
The overall Consumer Price Index (CPI), a key indicator of inflation, has swelled by 76% in the last four years, eroding the purchasing power of the people as the overall economy has not performed in line with ever-increasing prices.
In the last four years average yearly inflation stood at 14.6% against average Gross Domestic Product growth rate of mere 2.9%. “Furthermore, with inflation forecast to stay in double digits in fiscal 2012 as well, it will be the first time in the country’s history that we will observe double digit inflation for five years straight,” says the note.
Energy shortages and rising commodity prices
Structural weakness arising from energy shortage, along with hike in the international commodity prices, particularly oil, stand out as the major reason behind Pakistan’s high inflationary period, says the note. In addition, upward adjustment in the electricity tariffs, the rupee devaluation against the greenback and increasing government borrowing from the SBP – which stood at Rs3 trillion at the end of fiscal 2011 – also lend their hand in creating inflationary pressures, adds the note.
Weakness has resulted in the previous four-year GDP growth rate at a time when South Asian economies are booming.
CPI inflation likely to stay around 12% in FY12
The current year will be another year of double digit inflation on the back of higher commodity prices, particularly international crude oil and food products.
The two products contribute approximately 50% to the CPI basket and have been the major culprit behind the recent inflationary pressure. Overall, inflation is expected to clock at 12% in fiscal 2012 which is also the projection of the government, says the note.
After Ramazan CPI may touch 11% due to high base affect. However with full year inflation likely to remain in double digit once again, Pakistan will see for the fist time fifth -consecutive years of double digit inflation.
Published in The Express Tribune, July 22nd, 2011.
Inflation provides an important insight on the state of the economy and policies that govern it. Stable inflation not only provides impetus for economic growth, but also helps uplift vulnerable strata of society. Pakistan, in recent years has been in the grip of high inflation, which amongst other things has adversely affected the economic health of the country, according to a Topline Securities research note.
The overall Consumer Price Index (CPI), a key indicator of inflation, has swelled by 76% in the last four years, eroding the purchasing power of the people as the overall economy has not performed in line with ever-increasing prices.
In the last four years average yearly inflation stood at 14.6% against average Gross Domestic Product growth rate of mere 2.9%. “Furthermore, with inflation forecast to stay in double digits in fiscal 2012 as well, it will be the first time in the country’s history that we will observe double digit inflation for five years straight,” says the note.
Energy shortages and rising commodity prices
Structural weakness arising from energy shortage, along with hike in the international commodity prices, particularly oil, stand out as the major reason behind Pakistan’s high inflationary period, says the note. In addition, upward adjustment in the electricity tariffs, the rupee devaluation against the greenback and increasing government borrowing from the SBP – which stood at Rs3 trillion at the end of fiscal 2011 – also lend their hand in creating inflationary pressures, adds the note.
Weakness has resulted in the previous four-year GDP growth rate at a time when South Asian economies are booming.
CPI inflation likely to stay around 12% in FY12
The current year will be another year of double digit inflation on the back of higher commodity prices, particularly international crude oil and food products.
The two products contribute approximately 50% to the CPI basket and have been the major culprit behind the recent inflationary pressure. Overall, inflation is expected to clock at 12% in fiscal 2012 which is also the projection of the government, says the note.
After Ramazan CPI may touch 11% due to high base affect. However with full year inflation likely to remain in double digit once again, Pakistan will see for the fist time fifth -consecutive years of double digit inflation.
Published in The Express Tribune, July 22nd, 2011.