KARACHI: Inflation is expected to remain below three per cent in the outgoing fiscal year against the actual projected target of 6pc, Finance Minister Ishaq Dar said on Thursday at the launch Economic Survey 2015-16.

The current trend of inflation suggests that it will be contained much below the targeted rate of six per cent during FY2016 going forward.

According to the Economic Survey 2015-2016, the government is successful in creating a balance between global and domestic prices to ensure stability in prices. Though the fall in oil prices was one of the major factors behind the recent decline in inflation, other factors like smooth supply of major commodities also contributed in softening CPI inflation.

The Consumer Price index (CPI) Consumer headline inflation measured by CPI during July-April FY2016 averaged at 2.79pc against 4.81pc in the same period last year. The food group with 37.47pc weight in CPI basket showed an increase of 2.1pc.

This was lower than the 3.6pc observed in the corresponding period of last year. Based on the current trend, the contribution of food inflation to the overall CPI is estimated at 0.77 percentage points and non-food inflation at 2.07 percentage points as against 1.34 percentage points percent and 3.56 percentage points, respectively, in the comparable period of last year. The percentage of inflation – both food and non-food items – increased at a slower pace compared to last year.

Government borrowing is one of the key factors influencing the trend of inflation owing positive relation between government borrowing and core inflation.

During July-April 2016, average core inflation was recorded at 4.1pc compared to 6.9pc in 2015, 8.2pc 2014 and 9.9pc 2013.

The decline in government sector borrowing during July-March 2016 at 6.26pc against 6.75pc in the comparable period resulted in decline of core inflation to 4.1pc during (July-April) FY2016 compared to 6.9pc in the same period last year. The retirement of Rs534.6 billion by the government to SBP during the period under review also helped in lowering down core inflation.

The non-food inflation at 3.31pc during the period under review remained stable to be compared to 5.70pc last year. Among the non-food groups, education index increased by 8.72pc compared to 14.61pc of the corresponding period last year.

Prudent fiscal and monetary policies, stable exchange rate, smooth supply of commodities in the market and monitoring of prices both at federal and provincial level along with fall in global commodity prices helped in moderating the headline inflation (CPI) and other inflationary indicators i.e. core, food, non-food, SPI and WPI, the survey said.

Giving price comparison with regional countries, the survey said prices of essential consumer items prevailing on May 12, 2016 in Pakistan indicates that in comparison with the regional countries. Pakistan has the lowest prices of 12 out of 23 items including wheat, wheat flour, chicken farm, petrol, diesel, rice basmati, vegetable ghee, eggs, masoor pulse, mash pulse, beef and sugar than those of other regional countries.

It is the second lowest in the prices of seven items including milk fresh, mutton, moong pulse, red chilies, onion, gram pulse, tomatoes and third lowest in four items like potatoes, DAP, tea and urea.

The large variation in prices of some specific items like meat and poultry products is due to different consumption pattern and socio cultural variation.

The survey said there has been an upward/downward trend observed in international commodity prices like palm oil and soybean oil increased by 13.9pc and 6.0 percent since July 2015. Prices of sugar increased by 21.4pc since July 2015.

However, the prices of crude oil, wheat, tea and DAP declined by 24.3 percent, 5.0 percent, 16.7pc and 23.7pc respectively, during the same period.

The government also passed on the benefits of lower oil prices to domestic consumers which helped in bringing the stability in prices of commodities of the CPI basket.

Published in Dawn, June 3rd, 2016

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