Pakistan faces high inflation despite historic lows in region

KARACHI - As inflationary pressures across the globe continue to dissipate, Pakistan still faces a very high double-digit inflation.
A regional comparison of inflation reveals the rigidity of inflation in Pakistan in comparison to other regional players. Except for Iran, all the countries have shown notable deceleration in their inflation rates from July 2008 to March 2009. Inflation in India is at historic low, whereas, Thailand has seen deflation during March 2009 from a high of 9.2 percent in July 2008.
Other countries like Philippines, Vietnam, and Sri Lanka witnessed substantial deceleration in inflation since December 2008.
In Pakistan, the Federal Bureau of Statistics has 17.19 percent inflation in April YoY. Most of the economists believed the price pressures are still not on ease, as highlighted from 1.4 percent MoM increase in March. Both, the WPI and SPI have also depicted a 1.68 percent month-over-month increase.
However, price stresses may ease on account of slackening demand pressures due to bumper wheat and minor crops.
Although all the price indices like the CPI including core inflation, WPI and SPI have shown a downward trend in recent months, the decline has been subject to stiff downward rigidity.
Ministry of Finance’s report titled “Review of Economic Situation for the Period July-March 2008-09” projected the average inflation for the year (2008-09) close to 20 percent with end year inflation of around 11 percent. The most optimistic estimate for the next year inflation will be around 6 percent.
Report also pointed out that month-on-month increase in food and non-food inflation in the months of February and March has been especially disappointing.
The sugar and wheat have to play its role in inflationary environment in Pakistan in the final quarter of this fiscal year (April-June 2009). The dirty work of extra-market forces kept fruits of falling inflation away from Pakistan’s consumers.
Notwithstanding, difficult domestic environment, the inflation rate as measured by the changes in Consumer Price Index (CPI) showed an easing trend beginning in November 2008, touching 19.1 percent in March 2009 after reaching a record level of 25.5 percent in August 2008. While the food group was the major source of inflation in Pakistan during the first nine months of 2008-09, the non-food component of the CPI has also been persistently high, resulting in overall stubbornness of the inflation.