ISLAMABAD, June 10: The government is likely to miss the target of containing inflation at 6.5 per cent for 2007-08 and end the year with an average inflation rate of over 11 per cent, says the Economic Survey 2007-08.

The government has taken several measures to contain the rapid increase in inflation. The monetary tightening by the Central Bank will likely continue in the next year to contain the money supply and credit to private sector.

On the basis of these measures, it is expected that the inflation target for the year 2008-09 will be 11 per cent.

According to the survey, high global prices of food, fuel and other commodities driven by a weaker rupee, import costs and gradual removal of fuel, food and power subsidies along with monetary overhang on account of excessive borrowing from the SBP to finance the fiscal deficit have been mainly responsible for the sharp rise in prices this year.

These factors will continue to exert pressure on overall prices in the next two to three years. The longer the high inflationary pressure persists, the greater is the chance for wage-price spiral to gain firm hold. Pursuance of tight monetary will be necessary to prevent the wage-price spiral from gaining strength.

However, Finance Minister Naveed Qamar said the main challenge for the government would be to attain a balance between immediate responses to protect vulnerable groups and short-term efforts to ensure that inputs and credit were available to support a supply response over the next crop cycles.

Medium- to long-term efforts should be to increase supply by making agricultural land and labour more productive, thus having enough quantities of essential items to feed the country as well as for exports.

The survey suggested that henceforth, inflation needed to be curbed to limit its impact on long-term growth.

“Economic growth may suffer in the short run but it is the price the economy must pay in order to return to its long-term high growth path.”

In the interim, the government can undertake targeted subsidy programmes to alleviate the impact of rising inflation on the poor segments of society.