Inflation target: Planning Commission, MoF differ

The Planning Commission and Ministry of Finance are in disagreement over 2011-12 inflation target, documents reveal. The Planning Commission has forecast an inflation of 13 percent while the pundits in the Ministry of Finance have set a target of 12 percent.
Inflation estimates are premised on the performance of key macro economic indicators including growth as well as the expected impact of budgetary allocations on various sectors and revenue sources besides the monetary policy statement issued by the State Bank of Pakistan.
Sources revealed that the Planning Commission, in a summary prepared for the National Economic Council (NEC) meeting has set 13% Consumer Price Index (CPI) inflation target for the next fiscal year against 12% projection by the Ministry of Finance.
The Planning Commission also identified higher government borrowing from the banking sector for budgetary support, increasing price of electricity and petroleum products as well as rising prices of essential commodities in the international market as main factors behind the rising inflation estimate.
The NEC to be presided over by Prime Minister and attended by all the Chief Ministers to review annual plan for the current fiscal year and proposed annual plan for the next year, has been requested to limit government borrowing to about 10% of revenue of 2010-11 with the objective of controlling the inflation. Lower government borrowing, considered critical to limiting monetary expansion and to encourage private sector credit, would help decrease the CPI inflation index and increase the GDP growth rate in the next fiscal year.
The government must make efforts to bring the inflation rate down during the next fiscal year by following fiscal stringency, tight monetary policy and by ensuring adequate supply of essential items because price stability is critical for making long term economic decisions. The new taxation measures have contributed to an increase in production cost in the agriculture sector and pushed the average CPI inflation which is likely to touch 15 per cent for the current fiscal year against the annual plan target of 9.5%.
An official told Business Recorder that inflation has eroded purchasing power of each rupee earned sending more below the poverty line during the last three years. Inflation has been in double digits for the last 23 months. Given the ramification of rising inflation, price stability must be top priority for the next fiscal year, they added.