Experts warn on inflation risk

LAHORE: Pakistan’s consumer inflation rate increased in December despite recent sharp cuts in the prices of petroleum product and experts warned on Friday that the risk of inflationary pressure still persists in the economy.
Data released by the government showed the Consumer Price Index, a key indicator of inflation, rose 4.3 percent on the year in December, compared with 3.96 percent rise in November.
“Inflation declined sharply when the petroleum rates were cut on November 1, 2014 and after similar cut was announced on December 1, 2014,” said analyst Amina Usman.
“It was expected that the inflation would further decline in December but this did not happen, which is a clear indication that inflationary pressures outside fuel sector are stronger than the deflationary impact of lower petroleum rates.”
The country’s inflation numbers are almost halved in December 2014 when compared with 9.2 percent in December 2013.
Analysts said commodities prices, including agricultural products have declined along with reduction in petroleum rates globally and many economies are facing deflationary threats.
“The dynamics of food prices in Pakistan are different than the global markets” said economist Asif Ali Shahid.
He said wheat rates are low internationally but its rates remain at the last year’s level in Pakistan because of the government’s high support price.
“We are self sufficient in wheat still we consume local harvest at a high price” Shahid said.
“In case of rice where there is no support price mechanism the rates have declined in line with global rice rates.”
Shaid said wheat and milk have highest weight in the food basket of Pakistan.
“Inflation gets an impact when rates of these two agricultural commodities declined,” he added.
Shahid said among other agricultural commodities the rates of vegetable and fruits have registered decline but the weight of fruits and vegetables in the Comsumer Price Index food basket is very nominal, therefore did not make any significant dent on the inflation.
Economist Faisal Qamar the fiscal deficit of the government and its excessive borrowing is also keeping inflationary pressure intact.
The slippage in revenue target would further increase government deficit and moving forward further reduction in petroleum rates from January 01, 2015 would keep inflation in check,” Qamar said.
Moreover power consumers would get lower bills for the month of December which will also likely to keep inflation under check,” he added.