Inflation remained in double-digits in the four year term of the present government eroding the purchasing power of the country’s poverty-hit masses. Analysts have observed with inflation forecasted to stay in double digit in FY12 it would be the first time in Pakistan’s history that the country would be observing consecutive five years of double-digit inflation. According to researchers at Topline Securities, the overall Consumer Price Index (CPI) in Pakistan witnessed a massive increase of 76 per cent in last four years, thereby eroding the purchasing power of the masses. “In the last four years average yearly inflation stood at 14.6 per cent as against an average GDP growth rate of a mere 2.9 per cent,” said Nauman Khan of Topline Securities.
The analyst said inflation was one of the key indicators of a country’s economic condition and a measure of whether the state’s policies are working or not. He said stable inflation provides impetus for economic growth. “Pakistan has been in the grip of high inflation in recent years which has adversely affected the economic health of the country,” Khan said. The analyst cited structural weakness arising from energy shortages, along with hike in the international commodity prices, particularly oil, as major reasons behind the high inflationary period in the country. In addition, Khan said, upward adjustment in electricity tariffs, devaluation of rupee against the dollar and access government borrowing from the State Bank also lead to the creation of inflationary pressures.
The analyst said that Pakistan’s currency had witnessed an annual average devaluation of 9.3 per cent during last four years while the government’s budgetary borrowings from the central bank stood at Rs3.0 trillion at the end of FY11. The analyst said that Pakistan’s GDP growth rate has slowed down at a time when South Asian economies are booming. FY12 is expected to be another year of double-digit inflation on the back of higher commodity prices, particularly international crude oil and food products.
These factors, Khan said, had previously been contributing approximately 50 per cent to CPI basket and had been the major culprit behind the recent inflationary pressure. Food inflation stood at an average 14.6 per cent in last the last four years, while oil-related inflation stood at an average 13.7 per cent in the same period. “The impact of the commodity price hike would be further augmented by structural weakness arising from energy shortage and weakness in the supply chain,” Khan warned. In addition to commodity price hike, the analyst said, fiscal indiscipline was another factor contributing to inflationary pressure.
Overall, the analyst said, the average inflation in FY12 was expected to be around 12 per cent according to the government’s projection. After Ramadan the year-on-year CPI might touch 11 percent due to high base affect, he said.
