March 9, 2006	Thursday	Safar 8, 1427

KARACHI, March 8: Whereas inflation in the entire country never crossed the nine per cent mark in the first seven months of this fiscal year—some cities are experiencing double-digit inflation, analysis of the data compiled by the Federal Bureau of Statistics (FBS) reveals.

Year-on-year increase in inflation was the highest at 8.99 per cent in July 2005, and the lowest at 8.27 per cent in October 2005. But, this was the national average number for entire Pakistan. However, the city-wise break-up shows that Rawalpindi and Islamabad continue to brace double-digit inflation. In fact, the twin cities have been experiencing more than 10 per cent inflation since September last year. Four other cities namely Lahore, Peshawar, Sargodha and Khuzdar have also experienced 10 per cent plus inflation, at least, in one out of the seven months of the current fiscal year i.e. between July 2005 and January 2006.

Eleven other cities have not seen a double-digit inflation so far, during this fiscal year. These include Karachi, Hyderabad, Sukkur, Larkana, Quetta, Multan, Gujranwala, Faisalabad, Sialkot, Bhawalpur and Bannu. (FBS calculates inflation measured by Consumer Price Index (CPI) in seventeen cities of the country and reports the average as overall inflation in Pakistan).

Pakistan has set inflation target at eight per cent for the current fiscal year ending in June but indications are that it would touch nine per cent. During July-Jan 2005-06, inflation moved at annualized average rate of 8.48 per cent. High oil, gas, electricity and real estate prices, increase in wages, food supply shortages and excessive government borrowings direct from the central bank are some of the factors fuelling inflation during this fiscal year.

It is disturbing to note that in January 2006, the number of cities which saw 10 per cent plus inflation rose to five from just two in October 2005, when double-digit inflation had only Rawalpindi and Islamabad. (See table to know which cities experienced over 10 per cent inflation in January this year). What is even more disturbing is that food inflation rose past 10 per cent in January 2006 for the lowest income group in six out of seventeen cities. For households with up to Rs3000 monthly income, food inflation was 12.7 per cent in Khuzdar followed by Rawalpindi (11.9pc), Lahore (11pc), Gujranwala (10.8pc), Sialkot (10.6pc) and Peshawar (10.2pc).

The prevalence of 10 per cent plus inflation in five out of seventeen cities in January this year points to the intensity of inflationary expectations in the economy. The government is trying to contain inflation by keeping a more vigilant eye on price movements of food and other essential items and the State Bank continues to pursue a tight monetary policy for this purpose. But since the government has acted too late, for example in tackling sugar crisis, and since the SBP is shy of increasing interest rates at a faster pace, inflation keeps moving up despite all promises made by the policy makers to bring it down.

SBP Governor Dr Shamshad Akhtar said in London on Wednesday: “We would like to see inflation coming down to 8 per cent on an average basis for this year, but we would like to aim for a further lowering of the inflation rate in the next 12 to 18 Continued from Page 9months.”

To achieve this objective, she added, the SBP would need to maintain “a monetary tightening stance,” she added.

But the central bankers say privately that inflation could not be contained to eight per cent during this fiscal year unless the central bank immediately starts increasing interest rates further. The SBP has increased the benchmark six-month Treasury bills yield by a little more than 30 basis points so far during this fiscal year-and has kept its discount rate unchanged at nine per cent since April 2005.

Inflation in Jan 2006, Name of Cities: Islamabad 11.3pc, Rawalpindi 10.8pc, Lahore 10.6pc Khuzdar 10.5pc, Peshawar 10.1pc.