KARACHI, March 11: Consumer inflation or inflation measured by consumer price index rose 3.49 per cent in July-February 2004 over the same period of last year. CPI is made up of 374 most commonly used items of daily use.
Data released by the Federal Bureau of Statistics reveal that CPI inflation in February 2004 went up by 4.31 per cent over the corresponding month of last year.
CPI inflation at 3.49 per cent in the first eight months of this fiscal year reinforces the view that it would certainly burst the initial target of 3.9 per cent set for the full fiscal year July/June 2003/04.
The government has not reset the target but the State Bank had said in its first quarterly report that inflation may rise as high as 4.2 per cent during this fiscal year.
The latest revised estimate of inflation will be available at the end of this month when the SBP will release its second quarterly report. The report will focus on economic developments in October -December 2003 but present an overview of economic performance in July-December last year.
Independent economists are alarmed at rising inflation that is going to make life more miserable for the poor: some of them say inflation in this fiscal year may rise up to 5 per cent. But a senior central banker told Dawn on Thursday "though inflation seems set to rise beyond 4 per cent it is difficult to specify the increase right now."
"Inflation can be tackled not only through monetary measures but also through fiscal actions and other policy decisions," he said implying that whereas the SBP would keep overall money supply in check the government would try to contain its borrowing from the SBP that is very inflationary.
His remark also refers to the steps the government is taking to check price-hikes in wheat flour and cement and steel, etc. The government policy of not allowing Wapda and the KESC to go for an unjustified increase in power tariff is another example of what the government can do to check inflation.
Similarly, efforts to document the economy are going to contain rising currency in circulation that is creating asset price bubbles in the economy pushing up the priceline. But policy makers take pride in the fact that an impressive 14.7 per cent growth in large sector manufacturing in July- December 2003 shows that the economy is reaping benefits of high level of liquidity in the banking system.
The inflationary pressure is so visible that the SBP governor Dr. Ishrat Husain stated at the mid-term review meeting of the National Credit Consultative Council (NCCC) in January that economic growth of 5.3 per cent could be attained with inflation at 4-5 per cent.
Data released by the FBS show that CPI inflation of 3.49 per cent in the first eight months of FY04 over the same period of FY03 is slightly lower than where it stood in the first eight months of the last fiscal year. In July-February 2002/03, CPI had risen by 3.54 per cent over July-February 2001/02.
The fact that CPI inflation finally closed at 3.1 per cent in the last fiscal year shows that it was in the last four months of fiscal year 03 that inflation was contained effectively.
But central bankers and senior government officials privately admit that this does not seem to be a possibility during this fiscal year. That is to say that there is no hope that inflation at 3.49 per cent in the first eight months of this fiscal year may finally close at a lower level at the year-end.
The fact that CPI inflation has risen by 4.31 per cent in February 2004 over February 2003 primarily owing to increase in the items falling in food and beverages bring home a crucial point.
That is the effective inflation for the poor people who spend most of their income on food is much higher than the nominal 4.31 per cent increase in CPI value during last month.
Food & beverages have more than 40 per cent weight in overall CPI consisting 374 items. The percentage increase in the following food and beverages items in February 2004 over February 2003 shows how difficult life has become for the poor: Wheat (22pc); wheat flour (18pc); milk fresh (3.8pc); curd (3.2pc); branded powdered milk (9.7pc); loose powdered milk (7.7pc); branded turmeric powder (47.3); bread plain (4.4pc); rusk (5.1); bread tandori (18.3pc); tea prepared (6.8pc); beef with bone (20.2pc); mutton (21.2pc); onion (161pc); chillies green (65.3pc);carrot (6.5pc); garlic (74.8pc).