The Asian Development Bank voiced last month the fear that rising price trends could result in a rate of inflation close to double digit by the end the current fiscal in June and the next financial year may begin with double digit inflation.

It cautioned the government to the urgency to take effective countervailing measures to bring the inflation rate down, lest that overshadows other achievements in the macro-economic sector.

And yet the inflation is on the rise - far above the targeted rate of five per cent when the federal budget was presented in June last and the revised inflation rate of seven per cent estimated recently.

In the first seven months of the current financial year, ending January, inflation rose to 8.76 per cent, according to the figures released by the Federal Bureau of Statistics. And during the whole year ending January the rate of inflation was 8.51 per cent against 7.37 per cent in the preceding year ending January.

That means high inflation rate is persisting and creeping up to hit the disquieting double digit. If the government does not come up with effective counter measures on a crash basis, the end of the financial year may surely see double-digit official inflation rate, while actually that may be far higher than that.

There has always been a large gap between official statistics of inflation and the market reality that exceeds the bounds of the Sensitive Price Index as well with its 53 items of basic necessity accounted for.

When it comes to the SPI all the groups listed have exceeded 11 per cent except the first. For the lowest income group with an income of Rs3,000 the SPI is 10.11 per cent in the July-January period. For the SPI Rs3001-5001 group, the SPI was 11.10 per cent. And for the Rs5001-12,000 group the SPI was 11.69 per cent.

The government argues that the SPI reflects largely the food prices and a few other very essential items, while the Consumer Price Index (CPI) which accounts for 374 items is a better reflection of inflation.

To side step this argument and the disputes which follow, the government of India relies on the wholesale price index which it finds more credible than retail prices.

The Pakistan government too comes up with a wholesale price index. And its rise is usually lower than that of the CPI and SPI showing that the profiteering at the middlemen's and retailers' levels is truly exhorbitant

A striking contradiction in the latest figures is while those with incomes above Rs12,000 recorded a rise in SPI of 12.32 per cent, the rise in the CPI they experienced was lower than that of others in the lower income group - 8.27 per cent against 9.53 per cent of those in the income bracket of Rs3001 - 5000.

That means the better- to- do class is having it better than the lower income group in the area of Consumer Price Index. There are good reasons for the consumer prices to rise. To begin with there was shortage of wheat and high price of flour. Hoarders and market manipulators sold the wheat and Ata at far higher prices.

Then came the higher prices all round, after an interval when the government did not increase the POL prices, with their multiplier effect on prices as a whole. The government imported 1.5 million tonnes of wheat which it sold at higher prices.

Electricity rates have gone up for the WAPDA and KESC clients. Gas prices have been raised by 8.25 per cent. Freight rates have shot up. And bus fares will go up following the agitation against the POL price rise after the agitation ends or the government may put an end to the agitation through higher bus, taxi and other public conveyance fares.

When the cost of production in factories goes up, prices of manufactures will go up. The resulting higher cost of living makes the workers agitate for higher wages and get them.

While that may compensate the rise in the cost of living of some workers others may go to the market with the surplus money. The outcome is higher prices, which eventually neutralises their wage gains unless the supplies increase.

The worker has to pay more for his food, rent, electricity gas and transport. It is an all round rise in demand made on his meagre wages. Sugar prices then went up despite the fact the country is surplus in sugar and may even this year produce 3.9 million tonnes of sugar, according to industry estimates.

Following the exorbitant rise in land and property prices, rents have gone up hitting the middle class hard. If they cannot afford the enhanced rent charged by their existing landlords they can't afford to build their own houses because of the rising cost of construction and rise in prices of building materials.

What is remarkable about the present inflation is that it is an all round inflation, beginning with food, the basic food like wheat and sugar. Meat prices shot up and the government tried to check that in Ramzan but failed.

The hoarders and price manipulators and the rapacious middlemen have come to realise the limitations of the government, even when the generals are at the top of the ruling hierarchy.

Milk and egg prices have soared and stay high. As meat prices rose, the vegetable and pulses also went up. In winter, the tomatoes sell at Rs40 per kilo, and garlic and ginger, fattened by over- fertilization, sell for giddy prices despite their poor quality.

Chicken prices have gone up again after coming down marginally. The consumers have no alternative as mutton and beef are too expensive. When food prices increase, all other prices go up more or less. But what is conspicuous about the present inflation in the area of food is that the poor people have no alternative to the more expensive food items. Each and every item consumed by them is too costly. And so the undernourished people eat little and suffer.

The government and the State Bank of Pakistan want to lower the inflation and enable to people live better. But the fact of life is that wage earners have to support a large number of family members.

So, many of them are under nourished more so the women, and they are exposed to various ailments and sickness. And the public health service is too inadequate to take care of them. Private medicine is too expensive.

The government has two mechanisms to reduce inflation: reduce the money supply or the bank credit, and raise the interest rates. But the State Bank wants to do that without hurting economic growth, which may be seven per cent this year and the government wants to raise that to eight per cent next year. It also does not want to curtail economic activities and industrial production which can reduce employment at a time when more employment avenues are needed.

Secondly reducing the money supply or curtailing bank credit may not bring down prices. In this large informal economy there is too much money in the hands of unscrupulous people to be used at will.

Much of that tax- evaded money which will circulate faster when the bank credit is reduced or the interest rates are raised unduly. And almost four billion dollars have been coming in annually as home remittances and they have been in circulation. And 'Havala' mode has again become very active after the post September 11 fears and caution.

The government also does not want to increase the interest rates at a faster pace for fear of its adverse impact on the economic growth. The State Bank itself in its quarterly report had said that prices might not come down unless the supply side is well attended to and the government arranges for enough of the items in short supply.

That is costly in terms of foreign exchange; but there seems to be no way out unless the government wants to act tough with the hoarders, market fixers and other anti-social elements.

The government has to come up with comprehensive solutions though they will be costly, if it wants to bring down inflation. Otherwise the country will suffer grievously and development will be hampered due to excessive inflation for a prolonged period.