Forex

Recently government has announced the inflation target of 12 per cent in the federal budget for fiscal year 2009. The government’s current year (2007-08) fiscal target for inflation was 6.5 per cent. While according to government figures, the CPI based inflation stood at 11.11 per cent during July’07 to April’08. But if we look at these numbers, we see very alarming trends emerging. The food group is important components of CPI based inflation, so if we keep in mind the 12 per cent target of inflation for next fiscal year and assume that full year inflation will reach at around 12 per cent, we can analyse some important prices of essential items for the upcoming year.

Table-1 shows the prices of some important commodities, chiefly contributing in higher inflation of 11.11 per cent in 10 months of current fiscal year. In column “prices in 2009”, as per estimation the given commodities prices will rise by same rate, as in current fiscal year. And in last column we have assumed that the prices will increase by 12 per cent. (see table-1)

The above table shows the assumption based prices of some important items for fiscal year 2009 and the government has allowed us to calculate these numbers, because of inflation target of 12 per cent.

Government has also announced to cut overall subsidies to Rs.295 bn from Rs.407 bn for upcoming fiscal year and the difference will be consumed for development purposes. Table-2 shows some major changes in subsides. (see table-2)

From July, 01 the electricity charges will be increased up to 30 per cent while government has announced to cut subsidies on oil products to Rs.140 bn from Rs.175 bn.

That will directly hurt the consumer because traditionally, whenever government imposes taxes and cuts down subsidies to industries, all burden goes down to consumers specially the low income group who are directly affected by the price hikes.

Also, the increase in GST to 16 per cent from 15 per cent will trigger inflation to rise by more than the targeted rate of 12per cent.

As the government has increased subsidies on the sales of flour, ghee and sugar at utility stores and announced some relief packages for common men in next fiscal year budget, it is hoped that it will not take great deal of hard work on government part to remain in the range of loosely targeted rate of 12 per cent.

The international phenomenon to set the GDP and inflation target is that the target is always set below the GDP target while in this budget, economic managers unpredictably have set the inflation target as 12 per cent well above the GDP target of 5.5 per cent.

Taking all these factors into consideration one thing is sure; the upcoming fiscal year will prove tough for common man in terms of inflation.


Item Unit Prices in 2009 If prices increase

by 12per cent then

Tea 250 gm 91.26 88.48

Veg Ghee 2.5 ltr 655.88 429.35

Rice Basmati Broken kg 129.14 61.19

Cooking Oil 2.5 ltr 677.77 436.87

Red Chillies kg 409.48 220.51

Masoor Pulse kg 276.63 124.32

Petrol ltr 87.25 78.29

Diesel ltr 65.78 56.29

Source: 2007-08 prices FBS 2009 prices: Self-estimations

Table-2

Classification (Rs bn) Budget 07-08 Budget 08-09

(%) (%)

WAPDA 113 74 (34.51)

KESC 19.5 13.8 (29.23)

Import of Wheat 40 20 (50.00)

Import of Sugar 6.5 6.3 (3.08)

Ghee Packaged in USC 1.2 1.5 25.00

Sales of Pulses USC 0.2 0.5 150.00

Sales of Atta 0.2 0.5 150.00

Oil Refineries/OMCs/Others 175 140 (20.00)