Inflation declines to lowest level in 12 years in August

ISLAMABAD: Pakistan’s economy is moving towards deflation as inflation rate has clocked in at 1.7 percent during the month of August as against corresponding month of the last year.
The inflation rate has touched the 12 years lowest level in August 2015. The continuous decline in inflation rate is showing that country might experience deflation, which occurs when the inflation rate continuously decreased and falls below zero percent (a negative inflation rate).
“Pakistan’s economy is heading towards deflation; rather the country had already landed into deflation, as inflation rate measured by Wholesale Price Index WPI remained negative from last few months”, said Dr Ashfaque Hassan Khan, an economist. He further said that government should take action to avoid country from deflation. He blamed the pursuance of tight fiscal and tight monetary policy under the austerity programme of the IMF for taking the economy into deflation.
Dr Ashfaque Hassan Khan, who was a former advisor to the Ministry of Finance, said that Pakistan badly needs growth stimulus policy and reforms. He added that Pakistan is pursuing ‘stabilisation first’ or austerity programme for the last seven/ eight years in a row, which is moving country towards deflation.
In deflation, economic activity slows considerably, domestic demand weaken, unemployment and poverty rise, private sector is shy in expanding its businesses, therefore, they borrow less from commercial banks, foreign investors also become nervous and prefer to exit from the country, manufacturing activity slows in the country, and most importantly, it breeds civil unrest, social chaos, break down of law and order, and weakens the state’s authority.
According to the figures of Pakistan Bureau of Statistics (PBS) released on Tuesday, inflation measures through Consumer Price Index (CPI) recorded at 1.72 percent in the second month (August) of the ongoing financial over 2015-16 as compared to the same period of the preceding year.
Meanwhile, the sensitive price indicator (SPI), which gauges weekly inflation in kitchen items, has decreased by 1.5 percent in August 2015 as against the same months of last year. Similarly, the wholesale price index (WPI) based inflation decreased by 2.9 percent in the period under review.
Meanwhile, the CPI inflation remained at 1.76 percent during the first two months (July-August) of the ongoing financial year 2015-16 as compare to the same months of the previous year.
According to the data, food and non-alcoholic beverages prices had decreased by 0.57 percent and utilities (housing, water, electricity, gas and fuel) by 4.77 percent in August 2015.
Health and education charges went up by 3.22 percent and 9.29 percent, respectively. However, transportation charges were down by 10.41 percent because of the declining petroleum prices.
Prices of alcoholic beverages and tobacco stood at 16.25 percent, clothing and footwear 4.8 percent and furnishings and household equipment maintenance 4.25 percent. Charges related to recreation and culture went up 2.12 percent and restaurants and hotel 4.34 percent in August 2015 over the same month in 2014.
Meanwhile, the PBS data showed that price of tomatoes increased by 33.09 percent in the month of August 2015 against July, price of fresh vegetables enhanced by 17.87 percent, price of eggs surged by 12.46 percent, price of tea went up by 7.21 percent, price of pulse gram increased 6.54 percent, price of besan up by 4.39 percent, potatoes 3.65 percent, and gram whole prices increased by 3.05 percent during August.
Similarly, in non-food commodities, price of electricity increased by 1.47 percent. Meanwhile, prices of following commodities decreased: chicken 16.71 percent, fresh fruits 8.82 percent, onions 3.09 percent and pulse moong 12.66 percent.