Inflation background in pakistan

Price inflation is caused by: Declining economic growth Lack of expansionary policies Output setbacks Higher taxes A depreciation of the value of rupee

More than 11 percent inflation rate per annum recorded

Inflation background in Pakistan

The State Bank of Pakistan (SBP)’s inflation target of 5 percent

o In light of Pakistan’s growth performance o Empirical thresholds beyond which inflation harms growth

and financial development. Objective of the State Bank of Pakistan (SBP) should be price

stability. State Bank of Pakistan (SBP) should first and foremost focus

its attention and policies to keep inflation close to its target of 5 percent

Target of State Bank of Pakistan

•Inflation was reduced to below 5percent by 2000and remained stable through 2003.

o Tight monetary policy and fiscal consolidation•High growth rates from 2000-2008•High oil prices and food inflation•Recession in world economies•Record floods in July-August 2010 lowered agricultural output

and contributed to a jump in inflation.

Inflation during 2000’s

Current Challenges An impoverished and under developed country. Suffered from decades of internal political disputes. Low levels of foreign investment. It is the top concern among the public, climbing from 7.7% in

2007 to more than 13% in 2010. Pakistani rupee depreciated since 2007 as a result of political

and economic instability.

Price Indices Pakistan publishes four different price indices

– the consumer price index (CPI)

– the wholesale price index (WPI)

– the sensitive price index (SPI)

– the GDP deflator

Consumer Price Index The main measure of price changes at the retail level indicates the cost of purchasing a representative fixed basket

of goods and services consumed by private households. In Pakistan, the CPI covers the retail prices of 374 items in 35

major cities and reflects roughly the changes in the cost of living of urban areas

Whole Sale Price Index Designed for those items which are mostly consumable in

daily life on the primary and secondary level These prices are collected from wholesale markets as well as

from mills at organized wholesale market level It covers the wholesale price of 106 commodities prevailing in

18 major cities of Pakistan

Sensitive Price Index The weekly change of price of 53 selected items of daily use

consumed by those households whose monthly income in the base year 2000-01 ranged from Rs3000 to above Rs12000 per month

Informs about the actual position of supply: whether the commodity is available in market or not

Years Overall CPI Food CPI

70’s 13.3 13.8

80’s 7.2 7.9

90’s 9.7 10.1

2000-01 4.4 3.6

2001-02 3.5 2.5

2002-03 3.1 2.9

2003-04 4.6 6.0

2004-05 9.3 12.5

2005-06 7.9 6.9

2006-07 7.8 10.4

2007-08 12 17.5

2008-09 22.4 26.6

2009-10 (Jul-April) 11.5 12

Historical Inflationary Trends 1971-72 to 2008-09 (Annual percentage change, period average)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave201

2 2.9 2.9 2.7 2.3 1.7 1.7 1.4 1.7 2.0 2.2 1.8 1.7 2.1

2011 1.6 2.1 2.7 3.2 3.6 3.6 3.6 3.8 3.9 3.5 3.4 3.0 3.2

2010 2.6 2.1 2.3 2.2 2.0 1.1 1.2 1.1 1.1 1.2 1.1 1.5 1.6

2009 0 0.2 -0.4 -0.7 -1.3 -1.4 -2.1 -1.5 -1.3 -0.2 1.8 2.7 -0.4

2008 4.3 4 4 3.9 4.2 5.0 5.6 5.4 4.9 3.7 1.1 0.1 3.8

2007 2.1 2.4 2.8 2.6 2.7 2.7 2.4 2 2.8 3.5 4.3 4.1 2.8

2006 4 3.6 3.4 3.5 4.2 4.3 4.1 3.8 2.1 1.3 2 2.5 3.2

2005 3 3 3.1 3.5 2.8 2.5 3.2 3.6 4.7 4.3 3.5 3.4 3.4

2004 1.9 1.7 1.7 2.3 3.1 3.3 3 2.7 2.5 3.2 3.5 3.3 2.7

2003 2.6 3 3 2.2 2.1 2.1 2.1 2.2 2.3 2 1.8 1.9 2.3

2002 1.1 1.1 1.5 1.6 1.2 1.1 1.5 1.8 1.5 2 2.2 2.4 1.6

2001 3.7 3.5 2.9 3.3 3.6 3.2 2.7 2.7 2.6 2.1 1.9 1.6 2.8

2000 2.7 3.2 3.8 3.1 3.2 3.7 3.7 3.4 3.5 3.4 3.4 3.4 3.4

1999 1.7 1.6 1.7 2.3 2.1 2 2.1 2.3 2.6 2.6 2.6 2.7 2.2

Table of Inflation Rates by Month and Year (1999-2012)

Name: Faiqa LiaqatRoll no: 11042454-016

Topic: Inflation in Pakistan During

2011-2012

The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 10.8 percent during (July-April) during current fiscal year 2011-12, against 13.8 percent in the comparable period of last year.

The Wholesale Price Index (WPI) during July-April, 2011-12 on annual average basis has recorded at 11.2 percent against 21.0 percent last year.

The Sensitive Price Indicator (SPI) recorded at 8.5 percent during July-April, 2011-12 against 18.1 percent of last year.

Inflation in Pakistan 2011-2012

Base Year: The Pakistan Bureau of Statistics (PBS) has changed the base

year of the price indices from 2000-01 to 2007-08. Measures of inflation:

Consumer Price Index (CPI) The old basket of commodities in the CPI has been revised

and the commodities increased from 374 to 487 items and the commodity groups from 10 to12.

The coverage of cities has also been increased from 35 to 40. The food group weight has been reduced from 40.3 percent to

34.8 percent


21 items in the old basket have been dropped while 111 new items have been added

Wholesale Price Index (WPI) The basket of goods that makes up the WPI has also been revised. In the current series of WPI, items are categorized into five

commodity groups namely:(i) food products, beverages and tobacco, textiles, apparel and

leather products(ii) agriculture forestry and fishery products(iii) ores and minerals, electricity gas and water


(iv) other transportable goods except metal products, machinery and equipment

(v) metal product machinery and equipment. . A set of 463 items have been selected instead of 425 items to

accommodate changes in the production and sales of commodities in the wholesale market in 21 major cities instead of 18.

Sensitive Price Indicator (SPI) The SPI indicates the weekly change of prices of 53 selected

items of daily use prevailing in 17 major cities. Whose monthly income ranges from Rs. 8,000 to Rs. 35,000 per

month.


Causes of Inflation The year 2011-12 (Jul-Apr) witnessed both demand pull and cost

push inflation. inflation when viewed in the backdrop of the affects of the floods of

2010 and heavy rains in 2011.

which almost wiped out the major and minor standing crops in Sindh province, created disruption in the supply chain which resulted in surging inflation. The global spikes in commodities and fuel prices also exerted

pressure on domestic inflation. Devaluation of Money.

Inflationary Trend

Inflation on year to year basis reveals that the CPI was highest in July 2011 at 12.4 percent. However, in December 2011 it declined to single digit at 9.7 percent. Thereafter it increased steadily and reached 11.3 percent in April 2012. Food inflation on a year to year basis was highest in July 2011 and lowest in January 2012 at 9.2 percent. Nonfood inflation was lowest in July 2011 at 9.2 percent and highest at 11.6 percent in April 2012.

Inflationary Trend

Inflationary Trend

Price Stabilization Measures The government is focused to restrict inflation to 12 percent

during the current fiscal year 2012. Different policy measures have been taken to deal with food and

fuel price hikes and to contain the inflation through monetary policy.

Given that the average inflation for (Jul-Apr) 2011-12 was 10.84 percent and in view of the international food and fuel price trend the government is keeping a close watch on the movement of price trend through weekly ECC and Cabinet Meetings.

The State Bank of Pakistan continued to keep money supply on a tight leash.


However, inflation has been contained during current fiscal year as compared to last year due to tight monetary policy, better supply management and regular monitoring of prices and supply chain by the Cabinet and National Price Monitoring Committee.


The government is focusing on restricting inflation to 12 percent during the current fiscal year 2011-12. The current trend of inflation reported during the first 10 months Jul-Apr 2011-12 suggests that inflation has been stabilized on account of pursuing tight monetary policy and declining trend in global commodity prices. Inflation is likely to further decelerate gradually over the next few months, as better crops production and better management of supply chain may bring price stability in the country. The decline in inflation may continue further by falling global commodity prices and steps towards fiscal consolidation to contain inflation. However, long term solutions lie increase in agricultural investment; strong market integration; and, regional cooperation to secure food supplies for the country’s growing population.

Future Outlook

Inflation is one of the obstacles on the way of development. In Pakistan, it has squeezed the major part of the population. It needs to be controlled by strategic planning. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.

Conclusion

Inflation background in pakistan

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