Friday, December 10, 2010

Pakistan Consumer Price Index Inches Up As Food Prices Rise

Pakistan Consumer Price Index Inches Up As Food Prices Rise

ISLAMABAD -(Dow Jones)- Pakistan's inflation rate accelerated marginally in November as food prices soar, hurt by the unprecedented floods, raising the prospects of further monetary tightening by the central bank.

The consumer price index--the main measure of price changes--rose 15.48% in November from a year earlier, said Asif Bajwa, secretary of the Federal Bureau of Statistics, during a news conference. This is quicker than the 15.43% rise in October.
The index was up 14.44% from a year earlier in July-November. Pakistan's fiscal year runs from July through June.
"The reading is slightly lower than our expectations but it could cross 16% in December due to a low base last year," said Khurram Shehzad, analyst at InvestCap Securities.
Shehzad blames the high cost of food articles, driven by a rise in sugar and potato prices, for the uptrend in inflation rate.

The data highlight intensifying price pressures in the economy fueled by a heavy damage to the farm and civil infrastructure due to the floods. Prime Minister Yousuf Raza Gilani warned inflation could soar to 20% as the government struggles to revive the economy from disastrous floods.

Prices of food and beverages rose 20.54% from a year earlier in November, compared with a 20.06% increase in the previous month. They have a 40% weight in the consumer price index.
The government had before the floods forecast economic growth at 4.5% in the current fiscal year. Economists reckon that the government will likely lower the estimate once it has a clear assessment of the extent of damage from the floods.

The State Bank of Pakistan expects economic expansion of 2%-3% in the current fiscal year. At its last monetary policy review on Nov. 29, the central bank lifted the discount rate--its main lending rate--for the third time since July as it sought to tame inflation that it said will accelerate to an average 13.5%- 14.5% in the current fiscal year, higher than the previous projection of 9.5%.

Although economic growth is weak, economists say the possibility of more rate hikes cannot be ruled out as inflation continues to spiral.

A large part of the country was submerged by the floods that killed thousands and left millions homeless. The widespread damage has severely crippled the economy that was already suffering due to unceasing violence in the country.

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