Inflation target of 4 percent getting out of hand

The budgetary inflation target of 4 percent for the current financial year is getting out of hand.
Figures collected by the Statistical Division for the nine months ie July-March 04 show SPI rose by 5.51 percent, CPI by 3.70 percent and WPI at 6.68 percent - all depicting a rising trajectory.
The picture is more explicit in the context of annualised figures ie March 2003 to March 2004.
According to official statistics, for March 2003 to March 2004, SPI rose by 8.74 percent, CPI 5.33 percent and WPI by 6.21 percent. If the trend continues for the remaining three months, it would be difficult to contain inflation at four percent - a much vaunted target fixed by the government.
As a matter of fact, the second quarterly report of State Bank of Pakistan till December 2003 had noted that the inflationary pressures seen in the first quarter were strengthened in the second quarter as all the three indices recorded acceleration.
This observation appears more pronounced in the case of the third quarter in the light of Federal Bureau of Statistics data for March 2004.
It may be pointed out that the State Bank's report for second quarter also predicted inflation to be around 3.8 to 4.3 percent by financial year's end.
The rising inflation would mean erosion of incomes, more hardship for the unemployed and impoverishment of the low income groups, earning one dollar or two dollars a day. The latter category covers about 75 percent of the population.
The Bureau revised base for these indices at 100 in 2000. The March tally shows SPI to be at 116.62, CPI at 112.81 and WPI at 119.72. So that much is the erosion in the value of money since then.
There are remote chances of the situation to improve in the last three months. The main reason is that position in regard to food and beverages group with a weight of 40.34 percent and house rent with 23.43 percent respectively is not likely to improve.
The CPI figures for March 2004 as compared to February 2004, showed that a large number of commodities in food and beverage basket registered sharp increases in one month. According to the monthly CPI report, prices of fresh fruits rose by over 10 percent; vegetables 7.39 percent; wheat flour 5.87 percent; meat 5.76 percent; tomatoes 5.30 percent; wheat and spices 4.65 percent; while other items like milk powder, vegetable ghee, honey, fresh milk, cereals, milk products, tomato ketchup, chicken, readymade food, bakery products, etc showed a varying degree of rise between one to two percent. In the transport and communication, the air fare registered a rise of 13.08 percent during the month.
In regard to wholesale price index, WPI, the picture is ominous of things to come.
According to the official figures, the main items which showed increase in prices in March over February were: tomatoes 13.07 percent; wheat flour 9.61 percent; maida 8.06 percent; vegetable ghee 4.37 percent; meat 4.07 percent; wheat 3.69 percent and other eatables like fresh fruit, fresh milk, cooking oil, salt, mash, condiments etc posted varying degree of increase from one to over two percent.
However the following food items registered decrease: Onions 33.99 percent, fish 7.08 percent, vegetables 6.50 percent, jowar 6.44 percent, gur 2.99 percent; fresh fruits 2.22 percent; potatoes 1.07 percent and sugar refined 1.59 percent.
In the housing sector, an important measure in WPI inflation, the building materials have gone up substantially; iron bars and sheets by 38.88 percent, pipe fittings 12.85 percent; cement blocks 7.26 percent and bricks 3.52 percent.
In the fuel and lubricants category of WPI, coke alone has gone up by 56.25 percent over February's price.
The official document also notes that analysis of data for July- March during the last three years shows that SPI, CPI and WPI were highest in the current fiscal as compared to the data for the previous two years.
Similarly, the analysis of a data for March 2004 as compared to the March 2003 and March 2001, SPI, CPI in March 2004 were higher as compared to the previous two years, but WPI was lower as compared to March 2002 but higher as compared to March 2001-2002.What's more significant are the increases posted during March over February figures.
The inflation rates based on SPI, CPI and WPI in March increased by 1.30 percent; 1.02 percent and 1.77 percent over February 2004 respectively. Generally, monthly increase in the past two to three years has been less than one percent and even showed marginal decline, but the rising trajectory is more visible during the first nine months of the year.
This lends credence to apprehensions that it would be difficult to contain inflation to the much acclaimed figure of less than 4 percent.