KARACHI, Dec 14: Average inflation, measured by consumer price index or CPI shot up by 9.1 per cent year-on-year in July-November 2004, according to data released by the Federal Bureau of Statistics or FBS.
This means that prices of 374 items of daily use increased by an average 9.1 per cent in July-November 2004 over July -November 2003. Or the purchasing value of Rs1000 in July-November 2003 fell to Rs909 in July-November 2004.
The government has set inflation target at 5 per cent for this full fiscal year ending in June 2005. This means that the average increase in the prices of 374 items of daily use should not rise beyond 5 per cent between July-June 2004-05, over July-June 2003-04. Or, the purchasing value of Rs1000 between July-June 2003-04 should not fall below Rs950 in July-June 2004-05.
But a high 9.1 per cent inflation in the first five months of this fiscal year indicates that full fiscal year inflation would touch 7 per cent-and that too in case if the prices show a downward trend from December 2004 onwards. This means that the purchasing value of Rs1000 in the last fiscal year would decline to Rs930 during this fiscal year.
Since there are no indications of wages rising by the same pace, this fast paced inflation would make life more difficult for the public. Worst hit would be the poorer people as the incidence of inflation for them is always higher.
July-November 2004 inflation of 9.1 per cent is based on CPI or consumer price index comprising a basket of 374 items. But if we gauge inflation using Sensitive Price Index or SPI that covers 47 most essential items of daily use, we get the inflation number of 12.97 per cent for July-November 2004.
In other words, the purchasing value of Rs1000 in July-November 2003 fell to Rs870.30 in July-November 2004. In November 2004 alone, CPI inflation rose by 9.26 per cent and SPI inflation by 11.08 per cent over November 2003.
This means that the prices of 374 items of daily use rose by an average 9.26 per cent and the prices of 47 most essential items shot up by 11.08 per cent in November this year compared with November last year.
In other words, the real worth of Rs1000 in November 2003 fell to Rs907.40 in November 2004; for the poorer people the real value of Rs1000 in November 2003 declined even further to Rs889.20 in November 2004.
These statistics show how inflation is fast eroding the value of the rupee. To see if the much trumpeted higher economic growth, of which inflation is said to be a by-product, has made up for the loss in the rupee value, one has to look at the increase in wages or even income.
Comparable data on wage increase are not available, but as a thumb rule one must see if he or she has got an increase of Rs926 in his/her salary or income of Rs10000 during last month. Obviously, for most people particularly those in the salaried class the answer is NO.
Worse still, the poorer people, for whom the SPI inflation matters most, have surely not seen an increase of Rs1108 on their income of Rs10000. So, while they have made the sacrifice first, by having been hit hardest by inflation, they are yet to get the benefits of a higher economic growth.
Pakistan's economy grew by an estimated 6.4 per cent in the last fiscal year when CPI inflation averaged at 4.57 per cent. This year the economy is target to grow by 6.6 per cent with a 5 per cent increase in inflation. Whereas economic managers are boasting that the economy would surely grow by this pace, they keep mum on at what pace inflation will rise.
If the economy grows by, say 7 per cent during this fiscal year, beating the target by 40 basis points and inflation also moves up by 7 per cent, beating the target by 200bps, the economic managers would have no moral ground to boast about a higher economic growth.
What seems to be more embarrassing for the economic managers is the fact that they have failed in stabilizing the prices of wheat and wheat flour even after the country has imported a million tons of this staple food grain with declared plans of importing half a million tons more.
FBS data show that the average price of wheat flour rose from 14.17 per kg in October to Rs14.73 in November. Similarly the price of a 10kg bag of wheat flour increased to Rs131.81 from Rs127.85.
The prices of wheat and wheat flour have shown a continuous upward movement since the start of this fiscal year and the economic managers have kept telling the nation that these would fall "soon". But these prices did not fall even in the fifth month of this fiscal year despite the fact that the bulk of one million tons imported wheat had arrived in the country till the end of last month. This means that something is wrong somewhere, which the government has failed to address.
An increase in the prices of wheat and wheat flour was a key contributor to a 13.56 per cent year-on-year rise in the food and beverages component of CPI in November 2004, FBS data. House rent, which is the second largest component of CPI after food & beverages also showed the second biggest increase of 11.21 per cent.
