KARACHI - The international prices of most of the important commodities were again shooting up steadily. In December 2008 the palm oil international price was $440 per ton that has gone up to $693 by April 2009, showing an increase of $253 in just four months. The international prices of palm oil, however, still far below the level of $1026 per ton, recorded in July 2008. Similarly, the prices of gold in the international markets have surged to $889 per ounce in April this year, from $822 per ounce in December 2008. In July last year the international gold prices set the highest benchmark of $940 per ounce. The prices of soybean oil have also improved by $101 per ton this year. In April this year the soybean oil prices in the world markets mounted to $787, from $681 in December 2008. However, in July last year the soybean oil price stood at $1372 per ton. Likewise, the prices of crude oil have increased from $41 per barrel to $69 a barrel these days, showing an increase of $28. The prices of wheat, sugar, corn, copper, zinc and lead have also marked a significant growth from January to April 2009 period. The State Bank of Pakistan has observed that going forward, in the wake of sluggish global economic recovery, commodity prices are expected to remain subdued in coming months. However there are risks to this assertion, in particular, food prices may experience upward pressure as any disruption in the supply of key staples may force countries to adopt protectionist food policies due to their experience of food crisis in past years. SBP said the impact of weak global demand on the back of ongoing economic recession continued to affect commodity prices in the international markets. Commodity prices have declined from their peak levels in international markets. Though prices of all major commodities have slumped from all time highs, the impact of global economic slowdown is more pronounced in the case of oil. On the one hand, food prices witnessed relatively lesser decline due to their less elastic demand, while on the other hand, prices of manufacturing goods, durables and construction were affected the most, along with a decline in fuel and metals prices. Up to April 2009, the IMF food, fuel and metal price indices had declined sharply, by 26.7 percent, 61.1 percent and 40 percent respectively, since July 2008. The fall in commodity prices can be attributed to a number of factors, including a decline in global oil demand, particularly for power and steel production, on the back of sufficient available stocks in the world. Among non-fuel commodities, prices of major grains eased as a result of improved supply conditions as farmers around the world increased area under cultivation as compared to the previous year in response to earlier high commodity prices. In addition, demand for food commodities also eased since their use becomes less attractive as a substitute of oil (bio-fuel) due to decline in oil prices amid global recession. Domestic scenario The relative ease in inflationary pressures that began in Q2-FYO9 has continued into Q3-FYO9 with all price indices exhibiting a declining trend. While both food and non-food inflation show deceleration, the impact of the former was more pronounced in CPl. However, the impact of latter dominated in a sharp deceleration in WPl inflation. The sharper downtrend in WPl non-food inflation probably indicates the immediate impact of lower import unit values of key manufacturing inputs including oil, metal, lubricants etc. Also as a leading indicator, this points toward a sharp fall in CPI non-food inflation in next few months. Signs of easing inflationary pressures are also evident in the decline ill persistent component of inflation, which is measured by core inflation. The Non-Food Non- Energy (NFNE), and 20 percent trimmed mean, core inflation measures have shown signs of relative ease since March 2009. A major contributory factor to this was the tight monetary posture of the central bank throughout 2008. SBP raised its policy discount rate four times during 2008, for a cumulative increase of 500 basis points, taking the discount rate to 15 percent. Indeed the need to tighten monetary policy was accentuated by expansionary fiscal policy. The subsequent improvement in fiscal discipline and plunge in international commodity prices paved the way for containing excess demand and inflationary expectations. Accordingly, SBP reduced its policy discount rate by 100 basis points to 14 percent on April 20, 2009. In case of month -on-month (MoM) inflation, all inflation measures have also declined from their peak levels. The MoM inflation peaked out in July 2008 except for CPI food and core inflation, measured by trimmed mean. For example, CPI inflation (MoM) was recorded a 1.4 percent in April 2009 compared to 3.0 percent in April 2008. While, inflation is still high, SBP projection firmly indicates that the downtrend in inflation will gather pace in the next few months. The expectation, together with evident decline in domestic demand, led the SBP to initiate a loosening monetary policy.