ISLAMABAD: Pakistan’s annual inflation eased to 2.5 per cent in March — the lowest level since September 2003 — from 3.2pc in the previous month, mainly driven by lower fuel and food prices.

The inflation measured through the Consumer Price Index (CPI) was 5.12pc on average during the first nine months (July-March) of this fiscal year, the lowest average since 2003, the Pakistan Bureau of Statistics said on Monday.

The downward pressure came mainly from decline in the cost of non-perishable food items (-0.07pc) and transport (-0.01pc).

However, the recent increase in oil prices after a period of six months may arrest further decline in transport prices this month, reversing the downward trend in the overall inflation.

Core inflation — which is measured by excluding volatile food and energy prices — slowed for the sixth consecutive month by 0.1pc to 5.9pc in March compared to 6.2pc in the previous month. Falling inflation has also encouraged the State Bank of Pakistan (SBP) to cut its key interest rate to a decade low.

A finance ministry official said that there was a risk of deflation, a vicious cycle of falling prices, demand, and growth and rising unemployment, which central banks normally find extremely difficult to reverse.

Average inflation measured through Sensitive Price Index (SPI) was 2.55pc in July-March 2014-15, while Wholesale Price Index (WPI) inflation was 0.36pc. Lower WPI inflation reflects less demand for domestic commodities, apparently because of low purchasing power.

As a result of low inflation, the government has drastically cut the export refinance rate and long-term financing facility to make exports competitive.

In March, annual food inflation rose to 0.5pc, while that of non-perishable food items and perishable items increased to 0.07pc and 0.12pc, respectively.

The food items whose price increased included onions (23.92pc), tomatoes (8.19pc), fresh fruits (5.97pc), fresh vegetables (4.26pc), chicken (1.92pc) and tomato ketchup (1.25pc).

On the other hand, year-on-year non-food inflation was 3.9pc in March. International oil prices dipped to their lowest level of around $47 a barrel during February, but surged to over $51 a barrel in March.

The non-food items whose prices rose included cotton clothes (0.77pc), and cleaning and laundry (0.53pc).

Published in Dawn, April 2nd, 2015

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