ISLAMABAD, May 31: The government is all set to achieve the target of controlling inflation that was contained at 12 per cent during the outgoing fiscal year.

According to the Economic Survey, average inflation during the 10 months of the current year remained at 10.84pc, suggesting that the target may be easily achieved.

The survey, however, says that steps have been taken to deal with food and fuel price hikes and to contain inflation through monetary policy, augmenting supply, streamlining distribution and interventions to stimulate productivity.

Given that the average inflation for July-April 2011-12 was 10.84 per cent and in view of the international food and fuel price trend, the government is keeping a close watch on movement of price trend through weekly ECC and cabinet meetings.

The survey noted that the recent inflationary pressure had necessitated a tight monetary policy to suppress the aggregate demand.

The State Bank of Pakistan continued to keep money supply on a tight leash and to maintain fiscal discipline, the government also focused on prudent expenditure management. Expenditures are being contained through austerity measures and administrative mechanisms.

The year 2011-12 (July-April) witnessed both demand pull and cost push inflation when viewed in the backdrop of effects of floods of 2010 and heavy rains in 2011, which almost wiped out major and minor standing crops in Sindh, created disruptions in the supply chain which resulted in surging inflation.

Global spikes in commodities and fuel prices also pressured domestic inflation.

Inflation on year to year basis reveals that the CPI was highest in July 2011 at 12.4 per cent. However, in December 2011 it declined to single digit at 9.7 per cent. Thereafter it increased steadily and reached 11.3 per cent in April 2012.

Food inflation on a year to year basis was highest in July 2011 and lowest in January 2012 at 9.2 per cent. Non-food inflation was lowest in July 2011 at 9.2 per cent and highest at 11.6 per cent in April 2012.

Core inflation during the last nine months of the year remained almost at double digit levels except in July 2011 when it dropped to single digit at 9.5 per cent.

The main factor contributing to rise in non-food inflation was upward adjustment of energy, gas and fuel prices.

Both supply and demand side factors are responsible for food price escalation. These included supply disruption on account of the natural calamities during the year as well as increase in transportation cost due to high fuel prices. On the demand side, price hike is the consequence of inflationary gap measured as difference between monetary expansion and growth of overall national productivity.

The survey observed that reasons for rising food prices are manifold. The demand and supply side factors responsible for food price hike in 2007-08 also seem to continue in the current food price hike.

Non-food prices increased at a slower pace of 10.7 per cent than food prices. The divergent trend is due to different factors influencing these two broad components of CPI differently, such as items coverage, nature of items and impact of seasonal variation and availability.

Among the non-food items, hike in fuel related items, such as diesel, petrol, gas, CNG and power tariff rates pushed production and transportation cost up, thereby accelerating inflation.