KARACHI, May 18: Pakistan saw a double-digit inflation at 11 per cent for the second consecutive month in April as its economy advanced at a faster-than projected pace, petroleum prices remained high in international market and certain policy lapses continued to push up consumer prices.

Inflation measured by Consumer Price Index (CPI) rose 11.1 per cent in April 2005 over April 2004, according to data released by the Federal Bureau of Statistics (FBS). In March, CPI inflation had gone up 10.25 per cent year-on-year.

Policy-makers have been citing higher-than-targeted economic growth during the current fiscal year as the main reason for soaring inflation. Prime Minister Shaukat Aziz said on Tuesday that Pakistan’s economy would grow 8.3 per cent during this fiscal year against the initial target of 6.6 per cent. Small wonder then that inflation, originally targeted at 5 per cent, is set to settle around 10 per cent at the end of the fiscal year in June.

The FBS data show that average inflation in ten months to April this year rose 9.27 per cent over the same period of last fiscal year reinforcing the view that full fiscal year inflation would reach 10 per cent or rise past it.

In addition to an accelerated pace of economic growth, what else has pushed up inflation into double-digit zone is that the government has failed to check hoarding of essential commodities and profiteering by cartels. Wheat and sugar hoarding and profiteering by meat merchants can be cited as examples.

The government arranged import of over a million tons of wheat so far during the current fiscal year to curb its hoarding, but the delayed imports coupled with a flawed wheat distribution among provinces made the exercise least effective in checking inflation. Similarly, the government’s move to crack down on sugar mills responsible for pushing up sugar prices without justification has also not met with success. Most sugar mills have not even bothered to respond to the queries raised by the Monopoly Control Authority.

It is against this backdrop that food inflation or inflation in prices of food items in the 374-item consumer price index continues to scale new heights. In April, food inflation was at 15.7 per cent and in July-April 2005 it was at 12.8 per cent. “Such high food inflation means that the poorer sections of population are being hit the hardest,” remarks noted independent economist Dr Asad Sayeed.

The government’s initial inaction in containing food inflation through supply side and administrative measures is responsible, to a great extent, for a big rise in overall inflation. But part of the blame can be laid at the doors of the State Bank of Pakistan (SBP) that ignored the fact, for quite some time, that real negative lending rates or lending rates below inflation were fuelling speculative activities including hoarding of commodities.

Central bankers normally talk in terms of core inflation i.e. minus food and minus energy prices inflation to defend the suitability of the monetary policy in a given situation. But sadly in Pakistan’s context the SBP apparently ignored even a build-up in core inflation i.e. the rate of inflation that can be checked effectively through changes in the monetary policy.

In April, core inflation rose 8.4 per cent year-on-year and in July-April 2004-05 it showed an average annual increase of 7.4 per cent over the same period of last fiscal year. The central bank does not set a target for core inflation, but the fact that core inflation, which can be kept low even at times when overall inflation keeps rising because of increased food or fuel prices, beat even the overall inflation target of 5 per cent for this fiscal year.

Here again, central bankers say they had to let core inflation rise — and avoid tackling inflation through a sharp increase in interest rates — in three quarters of this fiscal year to keep economic growth on high track. They started an aggressive tightening of the monetary policy only last month.