ISLAMABAD, Jan 15: The government is likely to miss “an ambitious 6.5 per cent inflation target” set for the fiscal year 2007-08 due to persistent increase in the prices of basic food items, Dawn has learnt.
Inflation figures for the first half of the current fiscal year suggest that this target may be revised upward as prices of atta, rice, edible oil and vegetables are on the rise for the last few months.
Official figures, released by the Federal Bureau of Statistics (FBS), on Monday showed that inflation rose by 8.79 per cent in December 2007 over the same month last year.
The inflation in the month under review was principally driven by a 12.21 per cent increase in food prices, which reversed from the highest-ever food inflation of 14.7 per cent in October last, but even this is very high.
However, the over-all inflation in December was up by 0.58 per cent as compared to the previous month. This indicates that the inflationary pressure still persists in economy, which is likely to ease off in March.
Food inflation is often volatile and short-lived, depending on crop cycles, etc. For example, just four items (wheat, rice, edible oil and milk) contributed to more than 70 per cent of the domestic food inflation in the period under review.
Analysts said as the prices of these commodities are on the rise for the last few months mainly due to poor crops in major producing countries, which led to a surge in international prices of rice, wheat. The prices may ease somewhat if global production recovers.
Non-food inflation remained around five per cent in December 2007 due to fuel prices which were kept on hold for most of the year.
This capping of fuel prices cost government billions of rupees, but it helped check non-food inflationary pressures. However, the State Bank of Pakistan in its first quarterly report released recently showed that more troubling is the fact that the high and volatile food inflation is now increasingly influencing core inflation as well. Since May 2007, both measures of core inflation (i.e. non-food non-energy and the 20 per cent trimmed mean) have been trending up.
In other words, after resisting throughout fiscal year 2007, the prices of a broader range of the CPI basket are now being impacted by the cost push of high commodity prices, as suppliers of goods and services raised prices to protect their margins.
The inflationary pressures could rise further, if fiscal imperatives force the government to pass through the impact of recent oil prices.
Since inflation in recent months had been driven substantially by supply-side factors, such as food and energy prices, this has given rise to a debate over the need for monetary tightening. However, emergence of a widening inflationary spiral in Pakistan as a result of high commodity prices suggests that a tight monetary stance remains, the report said.
The statistics showed that cloth and shoes prices went up by 8.63pc, house rent was up 8.84pc, laundry charges 8.85pc, medicare 7.55pc, education 4.44pc during the month under review over last year.
On the other hand, inflation measured through Wholesale Price Index (WPI) also recorded a highest ever growth of 12.14 per cent in December 2007. The WPI, however, declined by 0.06 pc in November.
This indicates that the prices of selected products at manufacturing level were also showing an upward trend, which would push up retail prices in the months ahead.