ISLAMABAD, Sept 17: The government has asked the economic ministries concerned to “ensure price stability” with a view to achieving 8 per cent inflation target during 2005-06 at all cost. Official sources told Dawn on Saturday that Prime Minister Shaukat Aziz had said in a meeting earlier in the week, that price stability must remain a top priority to bring down the current inflation rate from 8.7 per cent to 8 per cent positively by June 30, 2006.

The sources said that serious directives have been issued to the provincial and district governments to become more effective and proactive in controlling hoarding and profiteering especially in Ramazan.

The average inflation rate during July and August this year remained 8.7 per cent. However, the sources claimed that there was a substantial reduction in food inflation which came down from 14.6 per cent of July-August in 2004-05 to 7.8 per cent in July-August 2005-06.

“There is a substantial decline in food inflation and if this trend continues then we will certainly achieve 8 per cent inflation target set for the current financial year,” a source said. This food inflation, he said, has 40 per cent weightage which means that reduction in food inflation helps to have decreased inflation rate.

The liberalization of import regime with regard to essential commodities had helped in reduction in inflation and food inflation which were the matter of serious concern during the last financial year.

“Our policy of liberalizing import regime is paying dividends as we are augmenting the supplies of essential commodities,” a source said.

Inflation rate which is measured by the Consumer Price Index (CPI), rose to 9.3 per cent during July-April 2004-05 as against 3.9 per cent in the corresponding period last year. And this was said to be the fall out of the expansionary monetary policy pursued in the past years, supply shocks such as shortage of some food items like wheat, atta, enhancement of wheat support price, higher international price of crude oil, exchange rate depreciation and rising trend of real assets prices and consequently wealth effect on aggregate demand.

Nonetheless, the sources warned that in case the government succumbed to pressure of landed gentry, mostly sitting in the assemblies, there would be new support price for wheat and cotton which will trigger inflation.

“The government will have to avoid announcing any new wheat or cotton support price if at all it wants to achieve 8 per cent inflation target in 2005-06,” another source said. He said the President and the Prime Minister have become “hostage of democracy” who could not very often say ‘no’ to the demand of giving new support prices to the farmers.

The government wanted its economic mangers to achieve price stability by maintaining high GDP growth and enhancing production of essential items; regulatory demand through a balanced mix of monetary and fiscal policies; ensuring exchange rate stability with the central bank’s commitment to provide foreign exchange for imports; improving the marketing and distribution system; ensuring timely measures to offset any possible domestic supply deficits with expeditious imports; keeping the input cost including utility tariff compatible with moderate inflation and neutralizing their possible effect through improvement in total factor productivity; relating wage levels, productivity and taxation.