Government has successfully contained inflation
By: Rana Assad Amin
Good news for the Pakistani people and businesses — Lowest price rise recorded in the past 4 years. Price increase in food and non-food items has been slowing down for the past many months. In October 2012 price increase was at its slowest pace since January 2008.
This is a sign of stabilisation of prices in the markets and a much-awaited relief for the people of Pakistan.
This success is attributed to government’s efforts in monitoring prices, ensuring continued supply of essential items, and tightly controlled economy policy.
In the past, reductions in price increase have resulted in decrease in interest on bank loans. Average interest rates have reduced from a high of 15% in 2008 to 10% in October 2012. This means that for the same amount of loan, businesses are paying 50% less interest as compared to 2008. This is an encouragement for businesses to increase their production and reduce their borrowing costs.
The falling trend in price rise has also proven to be happy news for the investors in the Stock Exchange. People are now diverting their savings to invest more in equities of Pakistani businesses. This is with the view that investments will yield more returns when businesses will declare added profits. As of 2 November 2012, the Stock Exchange is trading at an all-time high of 16,000 + points. This is the amount of investment that has never been seen before in the history of Pakistan — demonstrating confidence of Pakistani people on the economy.
When the present government came to power in 2008, the economy was displaying a dismal picture, due to multiple external and internal shocks of extreme nature. It is important to remember here that average price rise in August 2008 was 25% as compared to August 2007. On average items costing Rs100 in August 2007 were sold for Rs125 by August 2008. The rapid price increase was a direct result of record high international oil prices and record borrowings by the previous government. Imprudent economic policies of the previous government resulted in an economic bubble-burst and where the country had to suffer a trade deficit (more imports less exports) of around $15 billion, which drastically depleted our foreign reserves and forced the incumbent government to seek IMF assistance.
In October 2012, the average food prices (combining a number of items in a basket) have increased by 5.8% as compared to October 2011. Overall (combining food and non-food items), the price increase was 7.7% as compared to October 2011. This price rise is at its lowest since January 2008.
Average inflation in 2008-09 was around 17% as compared to 2007-08 that was reduced to 11% in 2011-12 (when compared against 2010-11 which was 13.7 %). The price thus reduced in 2011-12 despite unprecedented floods of July/August 2011 that resulted in loss of agriculture produce and disrupted supply at a massive scale.
In the current year, consistent drop inflation is witnessed. Inflation has reduced to single digits in July, August, September and October at 9.6%, 9.1%, 8.8%, and 7.7%. On average in the first four months of this year (July-October) inflation has been recorded at 8.8% as compared to 11.3% in the same period last year.
In these four months food inflation was 7.3% as compared to 12.9% last year, while non-food inflation was 9.7% as compared to 10.3% in the same period last year.
Similarly, sensitive price index (of 53 items) has reduced to 7.6% in the first four months of this year, as compared to 9.6% last year. The prices in the wholesale (measured through whole-price index (WPI)) have reduced from 17.8% last year to 7.6% in the first four months of this year. This demonstrates availability of ample supply of commodities available at the stage of wholesale, and warrants to further reduction in inflation in the coming months.
The core-inflation (excludes certain items that face volatile price movements, notably food and energy) is also witnessing reduction since July of this year. Core-inflation was 11.3%, 10.8%, 10.4%, and 10.8% in July, August, September and October respectively.
Pakistan is susceptible to rise in international oil prices because it is a net importer (i.e. the country imports more oil than its can produce/export). The international oil prices are at a high level. In 2007 a high of $147 per barrel of oil price was recorded. While oil prices subsided in December 2008, they have risen again and are trading at around $110 a barrel. Because of this, the global data reveals that all the developing economies (that depend heavily on imported oil) in the world are facing price rise. In September 2012, the inflation (CPI) in India was 9.7%, Bangladesh 7.4% and Sri Lanka 9.1%.
Overall in the current year (July 2012 to June 2013) the average inflation is expected to be in single-digits signalling better economic conditions, increased consumer confidence, and reduction in prices for the people of Pakistan.
A comparison of 53 essential eating items below, suggest that the number of items in which prices have decreased or remained same, have been much more than the items in which price increase has been witnessed. Overall the trend, as explained above, has been reducing.
Prices of Total Increased decreased unchanged
27 September 2012 9 1 6 28 53
04 October 2012 6 20 27 53
11 October 2012 18 11 24 53
18 October 2012 15 13 25 53
24 October 2012 13 11 29 53
1 November 2012 7 17 29 53
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