Analysis: Double-digit inflation to persist for record fifth year
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.
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@allaisa: Learn basic economics. Ignorance is no laughing matter.
@abdussamad: If that is true, you should aim for hyper inflation say 2000% per month, OK? Then according to your reasoning your rupee would have appreciated a lot and you can take over the world! Ha, ha!
@Sadiq Samin With an inflation rate of 76% over 4 years a rupee depreciation against the dollar of 9.3% is nothing. It is actually a net appreciation of the rupee against the dollar! The same goes for major currencies which are depreciating in value because their governments are printing money to stimulate economic activity and pay off their huge debts. You get your facts straight!
@ abdussamad..... in last 4-year i will agree with the writer of the note that PKR has depreciated against the USD by an average 9.3%. Furthermore, PKR was 114.67 and Rs.111.44 against Pound and Euro which are currently hovering around 138.48 and 121.4 respectively. So you get your facts straight....
Its funny that they talk about rupee depreciation. The rupee has actually appreciated against most major currencies in the last 2-3 years. Its the money printing by our government that is responsible for the high inflation rate.
Actually the South Asian countries are "booming" too much and they are all now in a monetary tightening phase. India has been the most aggressive in this regard as they recall that inflation causes governments to fall.
This article is one reason Governor Shahid Kardar has resigned.
I agree there has been no years in our history where inflation has stayed in the double-digits for so long. Part of this is explained by exogenous factors such as the soaring price of food and oil. But a great part of continued high inflation has been due to recurrent fisal slippages that have been monetized -- or what is the same thing: financed by printing money.
Give the long lags, one does not see inflation dropping back into single-digits before another 24-36 months -- assuming the absence of further price shocks. This has devastated the poor subject to the mitigating effect of surging workers' remittances which must have helped maintain living standards, if barely, in the rural areas.