ISLAMABAD, Nov 16: The core inflation – non-food and non-energy -- exhibited a slight decline as it stood at 5.7 per cent in October 2007 as against 5.8 per cent recorded during the same month last year.
Tight monetary policy, pursued by the State Bank of Pakistan (SBP), was mainly responsible for stability in core inflation.
The core inflation eliminates energy and food products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.
Official figures released here on Friday indicated that the core inflation in the first four months of the current fiscal year witnessed a slight decrease as it stood at 5.4 per cent as compared to 6.3 per cent during the same period last year.
Non-food inflation registered a decline, from 6.4 per cent in October 2006 to 5.4 per cent in October 2007 because of freezing of oil prices during the last few months.
Despite this decrease in core inflation and non-food, the overall inflation stood at 9.3 per cent in October 2007 as against 8.1 per cent in the corresponding month of last year.
This increase in overall inflation in October 2007 is attributed to a surge in food inflation, which moved from 10.5 per cent in October 2006 to 14.6 per cent in October 2007.
According to an official report of the finance ministry, food inflation, on the other hand, accelerated to 14.6 per cent in October 2007 as against 10.5 per cent in the same period last year owing to extraordinary surge in demand for food items, particularly fruits, vegetables, milk, meat, poultry, cooking oil during the month of Ramazan and the commencement of the wedding season after the festival of Eid in Pakistan.
Furthermore, the month of October also witnessed a sharp increase in wheat and flour prices, totally driven by ‘extra market forces’.
Although prices of wheat and wheat flour retreated lately, their contribution to the sharp increase in food inflation was already realised.
Food inflation is expected to ease off in the coming months.
Food inflation has emerged as a major source of concern for policy-makers in emerging Asia, including Pakistan.
Food prices rose at an average of 10.1 per cent and contributed 55 per cent to overall inflation in Asia, excluding Japan.
The upward trend in food prices is most evident in China (18.2pc), India (8.4pc), Indonesia (13.0pc) and Pakistan (14pc).
During the first four months (July- October) of the FY08, average inflation declined to 7.6 per cent as compared to 8.3 per cent last year and 8.6 per cent the year before.
In other words, the average inflation in the first four months of the current fiscal year is still the lowest in the last three years.
The non-food inflation averaged five per cent during July- October 2007-08 as against an average of 7.1 per cent in the same period last year.
Food inflation increased slightly to 11.2 per cent in the first four months of current fiscal year as against 10 per cent in the same period last year.
The wedding season is expected to continue in December as well, suggesting that food inflation is likely to ease off at the start of the new calendar year in a month’s time, added the report.
The current fiscal year’s (2007-08) inflation target has been set at 6.5 per cent and the current inflation figures suggest that this target is likely to be achieved.
