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Inflation jumps up by 25 pc
Food, beverages prices soared by 31.7pc
Staff Reporter
Islamabad—Inflation increased to near three-decade high in October,
placing further strains on nation that needs $10 billion to avoid
default on its debt.
Consumer prices soared 25 per cent from a year earlier after gaining
23.9 percent in September, the Federal Bureau of Statistics said in
Islamabad Monday. Transport and communication costs jumped up by
39.3 percent, with food and beverages prices up by 31.7 percent.
According to the report, the highest increases were felt in food
prices; non-perishable food items rising over 40 per cent and
perishable food items rising over 23 per cent over the past year.
The effects of the inflationary pressure were felt hardest by the
poor, with the SPI (Sensitive Price Indicator, a weekly measure of
the price of 53 items of daily household use by income group)
showing a 35 per cent increase over the past year for those earning
less than Rs. 3000 a month as compared to a 31 per cent increase
over the past year for those earning more than 12000 Rupees a month.
The WPI (Wholesale Price Index) showed the effect of falling
commodities prices, showing a decrease of 1.87 per cent for month of
September 2008, and an increase of 28.38 per cent for the year
ending October 2008.
Pakistan may be compelled to raise interest rates in order to
receive an IMF bailout, if the Washington-based lender insists on
the same conditions it applied to loans for Iceland and Ukraine.
Higher borrowing costs may not bring inflation down soon as other
conditions attached to an IMF loan would likely include higher
energy prices, economists said. “The time when inflation actually
starts to recede may be pushed forward further,” said Khalid Iqbal
Siddiqui, head of research at Invest Capital Securities in Karachi.
“Even though fuel prices are currently on the way down, there are
other utilities whose prices are likely to be raised by the
government, as per an agreement with the IMF.”
State Bank of Pakistan Governor Shamshad Akhtar is struggling to
bring inflation under control amid a blowout in the nation’s balance
of payments and 31 percent drop in the rupee value this year, which
has driven up import costs. The currency reached a record low of
83.55 per dollar on Oct. 17.
The nation’s foreign reserves have also shrunk to $3.71 billion on
Oct. 25 from $14.2 billion a year ago, raising concern that Pakistan
will not be able to pay $3 billion debt servicing costs due in the
coming year.
Gasoline prices in Pakistan were cut by 6 percent on Nov. 1, the
seventh change in eight months, after a decline in crude oil prices
in the international market. Pakistan is expected to make a formal
request for financial assistance to the IMF this week, the Business
Recorder reported today, without elaborating on where it obtained
the information.
Conditions attached to an IMF loan would include an increase in the
central bank’s benchmark interest rate to 15 percent from 13
percent, as well as a 31 percent rise in tariffs on electricity and
other utilities, the newspaper reported. Pakistan is also seeking
funds from lenders such as the World Bank and the Asian Development
Bank and donor countries included in the ‘Friends of Pakistan’ group
to help stabilize its economy. A meeting of the group, which
includes the U.S., U.K., China and Saudi Arabia, is scheduled for
this month in United Arab Emirates. Pakistan’s credit rating was
lowered by Standard & Poor’s and Moody’s Investors Service in
October on concern the nation won’t be able to pay its overseas debt
because of eroding foreign reserves. The country ended its last IMF
programme in 2004.
“Pakistan faces severe pressure from the external side, the fiscal
side, the monetary side, economic growth and politics,” Elena
Okorotchenko, head of Asian sovereign ratings at S&P, said in a Nov.
5 interview in Singapore. “There are five angles in which we analyze
a country’s ratings and Pakistan is negative on all counts.”
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