KARACHI, Oct 12: Inflation measured by Consumer Price Index or CPI rose by 9.18 per cent in the first quarter of this fiscal year reinforcing a widely shared view that the full year inflation will rise beyond 6 per cent, against the initial target of 5 per cent.

Data released by Federal Bureau of Statistics or FBS show that inflation measured by Sensitive Price Index or SPI shot up by 14.02 per cent during the same period, which means the incidence of inflation was the highest for the poor people.

Inflation measured by Wholesale Price Index or WPI went up by 8.71 per cent, which signals that CPI and SPI inflation cannot be checked easily in coming months. The reason is that WPI inflation, which can loosely be labelled as inflation for businesses, impacts on CPI and SPI after a couple of weeks.

In September 2004, CPI and SPI inflation rose by 9 per cent and 13.85 per cent respectively over September 2003 whereas WPI increased by 8.01 per cent. What pushed up the CPI by such a big margin in the last month was a 13.13 per cent increase in the prices of food and beverages that account for 40 per cent of CPI covering 374 goods and services.

A 10.17 per cent increase in house rent that claims more than 23 per cent of the overall consumer items basket also contributed largely in keeping CPI inflation at 9 per cent last month, down slightly from 9.25 per cent in August.

How fast inflation has risen in July-September 2004 over the same period of last year is evident from the fact that year-on-year inflation in July-September 2003 was far lesser than now. See the chart.

Economic managers say the high incidence of inflation should be seen as a by-product of higher growth in the economy. Pakistan's economy is targeted to grow by 6.6 per cent during this fiscal year, up from an estimated 6.4 per cent in the last year. In the last fiscal year, CPI inflation had risen by 4.57 per cent, up from 3.10 per cent a year ago, when the economy had grown by 5.1 per cent.

The CPI inflation is driven primarily by higher prices of food and beverages that cannot be altered much through changes in the monetary policy. The same would apply on fuel and lighting prices when they start rising, after the de-freezing of domestic oil prices, and push up inflation.

The government has kept domestic oil prices unchanged since May, despite a big rise in international oil prices, by deferring collection of petroleum development levy or PDL.

A higher-than-targeted collection of revenue and larger-than-projected payments of dividends by state-run companies like PTCL and OGDCL have so far offset the impact of this deferment of PDL.

But there are indications that the government may start collecting PDL and thereby allow the domestic oil prices to rise in relation to the international prices by end of this year or early next year.

In that case inflation would rise further because of the fact that higher oil prices do have a trickle-down impact on the prices of almost all items of daily use whether directly or indirectly.

Most of the 47 essential items of daily use covered under SPI respond directly to the changes in oil prices and as such an increase in domestic oil prices would increase SPI inflation immediately and by a substantial margin.

SPI inflation that can rightly be termed as the inflation for the poor was at 13.85pc last month and if it does not fall substantially before it starts responding to a likely increase in oil prices, the poorer sections of population would be hit too hard to recover.

Both the government and the central bank have been making efforts to contain inflation without letting the economy slow down. The central bank started raising treasury bills rates back in February 2004 and sped up the process since the start of this fiscal year in July.

Lately, the central bank also stopped banks from financing of mere purchase of land because that was leading to big speculative increases in real estate prices and was impacting on inflation.

The government, on the other hand, is importing wheat to ensure timely supply of food items so that their scarcity does not push up inflation, as witnessed during the last fiscal year.