Prices of non-perishable consumer items and perishable food commodities witnessed increase of 16 to 30 percent in the first week of July 2011 due to inflation, which stood around 14 percent and during this period, food inflation, coupled with energy and some essential items remained higher.
"High government borrowing from central bank and higher currency in circulation remained major factors in holding the inflation rate higher," said soft commodities expert Professor Dr Karamat Ali, ex-Vice Chancellor of BZU University Multan. "The government owes banks around rupees 5,464 billion -which it borrowed for meeting its expenditures during April to June 2011," Karamat said.
He said it is surprising that government's borrowing from commercial banks, besides central bank, stood almost doubled in fiscal 2010-11, mainly due to lavish expenses. Prices of textile products especially fabric for men and woman, pure leather made shoes, shirting and pure coarse and fine latha saw increase of 12 to 15 percent while average prices of 21 items also registered increase.
Elaborating, he said that the items recording increase in their prices included LPG cylinder, man's cotton and woman's printed fabrics, pure leather goods including shoes besides paper products. The perishable items that saw price surge include potatoes, wheat average quality, wheat flour, onions, beef, bananas, mustard oil and mutton. "The producer and suppliers' prices in these major essential items also witnessed increase, similarly, core inflation remained in double digits," he remarked.
The expert observed, "With the figure of June 11, full year CPI inflation level stands at around 14 percent and would remain the same in coming months on the back of further increase in power and gas tariff for all categories by 10 percent to 15 percent". The present expansion in broad money supply is largely explained by higher government's borrowing for budgetary support and given the nature of its expenditure (heavily distorted towards debt servicing), the expansion unfolds limited growth prospect and high inflation potential, he concluded.