Inflation falls below thirty year high

Friday, June 12, 2009

ISLAMABAD: Inflation decelerated from a three decade high in May 2009 owing to slowing down of economy and slight easing in essential food prices.

The inflation measured through Consumer Price Index (CPI) eased to 14.39 per cent in May from 17.19 per cent in April. The downward trend in inflation has started since October 2008, which touched all time high of 25 per cent.

The dip in inflation during the period under review accrued partly due to one per centage point decrease in core inflation (non-food and non-energy) after four times increase in the bench mark interest rates during the year 2008.

The statistics showed that core inflation declined to 16.6 per cent in May from 17.7 per cent in April. Though the core inflation is still on the higher side in May 2009 as compared to 12.3 per cent of the same month last year but a downward trend has been witnessed, which is a healthy sign.

Core inflation is also rising on account of surging house rent and sub-indices related to medical care. The house index rent rose by 18.91 per cent and medical care cost by 6.50 per cent.

Governor Syed Salim Raza has slashed the central bank’s key rate in April last for the first time since 2002, reducing borrowing costs to 14 per cent from 15 per cent.

It is expected that the central bank may further consider further slight cuts in the up coming policy review in July to spur economic growth.

It is expected that government may also consider some relief measures to mitigate the drastic impact of raising interest rates, which may dent growth which is already expected to be around two per centage point by the end of June 2009.

While for the year 2008-09, government estimated annual inflation target at 12 per cent but the government seemed to have failed to bring down to the closer range despite the fact that oil prices witnessed a hefty decline during the period under review.

The government would be facing tough task to reduce inflation to 13 per cent in 2009-10 and 9.5 per cent under its so-called home-grown stabilization programme.

‘We would bring inflation to a single digit next year’ Depty Chairman Planning Commission Sardar Aseff Ahmad Ali told Dawn.

He said that in the budget measures will be announced to bring down inflation. He said that the current inflation is price driven. ‘I can’t disclose the proposed measures before the budget,’ he added.

Figures issued by the Federal Bureau of Statistics on Thursday showed that the average inflation hiked by 21.55 per cent in July-May period of the current fiscal year as against 11.11 per cent during the same period last year.

On a monthly basis, the food inflation increased by 12.11 per cent in May 2009 over the corresponding month of the last year. The food inflation has eased owing to availability of wheat and other commodities in the market. The food inflation has started decelerating trend in the past few months when it reached to all time high of 35 per cent in October last.

In the food basket, price of non-perishable food items witnessed an increase of 14 per cent and perishable items 11.86 per cent in the month under review, reflected that price spirals were not seasonal as industrial goods have also witnessed tremendous increase.

The food and lightening price witnessed an increase of 25.67 per cent during the month of May over the same month last year. With the rising trend in this index, the transport and communication price also witnessed an increase of 6.83 per cent.

The wholesale price index (WPI), the most commonly used measure to monitor the cost of production, rose to 4.73 per cent in May 2009 over the same month last year. However, the WPI in the first 11 months stood at 19.69 per cent of the current fiscal year as against 15.06 per cent over the same months last year.

The average weekly inflation of essential commodities witnessed an increase of 11.24 per cent in the year under review over the last year. However, in the July-May period it hiked by 24.75 per cent as against 15.56 per cent over the last year months.