Inflation hovers above 15%

October figure suppressed because of drop in prices of perishables, trouble expected next month.

ISLAMABAD: The inflation figure has been recorded above 15 per cent for the second month in a row, underscoring flaws in government policies that are solely targeting the interest rate but not doing enough to improve the supply chain or curb public spending.

The Consumer Price Index, an indicator showing movement in prices in retail markets, went up by 15.33 per cent in October compared with the same month last year, according to data released by the Federal Bureau of Statistics (FBS). In September, the aggregate increase in prices was recorded at 15.71 per cent.

The numbers for October, however, are below the expectations of the government and economic analysts alike, mainly because of an ease in prices of certain perishable food items.

“Last month, the prices of onions, tomatoes, chicken, potatoes and fresh fruits dipped significantly and this has helped restrict inflation below 16 per cent,” said an FBS analyst.

Finance ministry officials admitted that October’s numbers highlight inconsistencies in monetary and fiscal policies. The government has been trying to arrest the spike in prices by increasing interest rates in a bid to curb demand but has not been doing enough to curtail current expenditure, they added.

Moreover, the hike has been attributed to the disruption in the food supply chain caused by the recent floods.

“The core inflation minus food and energy figure rose 9.3 per cent in October and this shows that there is no need to increase the interest rate further,” said Dr Ashfaque Khan, Dean of the business school at NUST.

However, ministry officials say the worst is likely to come in November, as the increase in rates of petroleum products and the abnormal surge in sugar prices will be reflected in next month’s figures. They are also expecting import pressure in the wake of reconstruction activities. “In order to curb import pressure, policymakers are being pressed by the International Monetary Fund (IMF) to let the rupee depreciate further by three per cent,” said an official who participated in the recent dialogue held with the IMF.

Average inflation for the first four months (July-October) of the current fiscal remains at 14.2 per cent.

Published in The Express Tribune, November 12^th, 2010.