KARACHI, April 12: Consumer inflation or inflation measured by the Consumer Price Index shot up 5.33 per cent year-on-year during the last month belittling the benefits of the low interest rates.

Data released by the Federal Bureau of Statistics show that inflation measured by Sensitive Price Index and Wholesale Price Index also rose 8.74 per cent and 8.21 per cent in March 2004 over March 2003.

"This rise in all the three price indices mean that the common man is not getting benefits of low interest rates," says noted monetary economist Dr. Javed Akbar Ansari. What lends credence to his assertion is that the year-on-year rise in the three price indices in March 2004 is much sharper than what it was in March 2003.

In March 2003 CPI and SPI had gone up 4.16 per cent and 5.06 per cent over March 2002 whereas WPI had shown an increase of 0.78 per cent only. "If inflation is rising too fast despite a decline in interest rates then it means that the common man is not getting indirect gains of low interest rates," remarks Dr. Ansari.

Weighted average lending rate of all the banks combined was at 5.3 per cent at the end of February 2004 down from 7.58 per cent at the end of June last year. But at 5.30 per cent at end-February the average lending rate is already up 26 basis points from 5.04 per cent it was at the end of January.

"What is more troubling is that the increase in SPI is faster. This means that the low-income groups are hit hard," says Dr. Ansari. SPI inflation hits the common man hard because it broadly shows the incidence of inflation on lower income groups due to its specific coverage of 53 essential items of daily use.

The SBP said in its second quarterly report that "the current surge in inflation has affected low-income group most." That has been the case "because of higher food inflation as this segment spends a larger proportion of their income on essential food items."

How pronounced has been the impact of higher food prices on the SPI is also evident from the fact it showed a huge increase of 1.30 per cent in March 2004 over February 2004.

In March 2003 SPI had recorded a nominal growth of 0.01 per cent over February 2003. And in nine months to March this year SPI climbed up 5.51 per cent year-on-year against 3.93 per cent YoY increase it had recorded in nine months to March 2003.

The critics of the government policies cite higher inflation to substantiate their view that the trickle down impact of the improvement in macroeconomic indicators are yet to be seen.

But policy makers keep reminding them that a rise in inflation at this stage of economic recovery is not only inevitable it also proves that the economy is taking off.

The government had initially projected CPI inflation of 3.9 per cent for the fiscal year July/June 2003/04. But the State Bank said in the second quarterly report on economy late last month that CPI inflation should settle around 3.8-4.2 per cent.

In the last fiscal year CPI inflation was recorded at 3.1 per cent. In July/March 2003/04 CPI inflation showed an increase of 3.7 per cent over the same period of last fiscal year.

Policy makers say if CPI inflation rises past the original target of 3.1 per cent this should not be a cause of concern because the economy is also poised to grow 5.5-5.8pc against the initial target of 5.3 per cent.

But regardless of the annual inflation in full fiscal year 2004 monthly year-on-year increase in CPI inflation is making it difficult for the people to make both ends meet. That sounds truer in case of SPI inflation because of the nature of the items of daily on which it is based.

The SPI basket contains such essential food items as wheat flour, rice, pulses, beef and mutton, eggs, bread, sugar, milk, curd, cooking oil, vegetables and tea etc.

Economists and bankers say one of the reasons for inflation rising too fast is that the SBP has not fully succeeded in containing monetary growth particularly expansion in currency in circulation. They say that the central bank may have to slightly adjust interest rates upwards to rein in galloping inflation.