12 April 2005	Tuesday	02 Rabi-ul-Awwal 1426

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KARACHI, April 11: Inflation in March 2005 rose by 10.25 per cent over March 2004 whereas inflation in the 9-month period of July-March 2004-05 increased at the rate of 9.06 per cent over the same period of last fiscal year. According to data released by the Federal Bureau of Statistics, prices of food and beverages rose by an average 13.33 per cent; house rent went up by 12.3 per cent and transport and communication services became costlier by 10.65 per cent in March this year, compared with March last year.

Since these three sub-groups of the 374-item Consumer Price Index constitute 71 per cent of the index, a sharp rise in the average prices of goods in these groups resulted in an increase of 10.25 per cent in overall inflation.

The State Bank has been tightening interest rates since the start of new fiscal year in July — and on Monday it increased its discount rate from 7.5 per cent to 9 per cent after a gap of more than two years — but inflation has been on the rise despite these measures.

The SBP had last changed its discount rate in November 2002.

The discount or repo rate is the rate at which banks can borrow funds from the central bank for up to three working days against government securities.

The central bank recently said that inflation for the entire fiscal year July-June 2004-05 may end up at around 8.2-8.8 per cent against the initial budgetary target of 5 per cent.

Inflation has been on the rise chiefly because the economy is growing faster than projected and that banks, flush with excess liquidity, are making huge loans to businesses still at below inflation rates. Part of the money so borrowed from banks is finding its way into areas of speculative activities, including stock market and real estate. Besides, frequent increases in petroleum prices and hoarding of staple food items like wheat has also been contributing to increase in inflation.

That inflation is rising too fast is evident from the fact that the rate of increase in inflation during March 2005 (10.25 per cent) was almost double the rate of increase in inflation in March 2004—5.33 per cent.