Country’s annual inflation rate declined to 3.2 per cent in February 2015, stoking fears of deflation.

The country’s headline monthly inflation, measured by the consumer price index (CPI), was recorded at 3.2 per cent in February 2015 over the corresponding period last year. The previous lowest level of inflation was 3.1 per cent back in 2002-2003.  

The continuous decline in inflation has created risk of deflation, as the economy is expected to slow further in the next few quarters. Deflation occurs when the inflation rate continuously declines and falls below zero percent (a negative inflation rate). One of the top economists of the country said that country is already witnessing deflation from last few months.

“Pakistan has landed into deflation, as inflation rate measured by the changes in Wholesale Price Index (WPI) is already showing negative growth. The domestic demand of commodities has gone down due to the purchasing powers of the people, as they could not buy things. Therefore, prices of the commodities are persistently declining,” said Dr Ashfaq Hassan Khan, former finance advisor to the government and currently dean of Business School at the National University of Sciences and Technology.

He told The Nation that situation is worrisome and government should take action to control it. “The government should increase development expenditure, particularly in energy and social sector to pump prime the economy. IMF dictated budget deficit target will prolong the deflationary phase with all its adverse consequences for the economy”, Dr Ashfaq Hassan Khan concluded.

The State Bank of Pakistan (SBP) had recently cut the interest rate by one percent to 8.5 percent due to the continuous decline in inflation rate. The SBP has also noted that inflation would further decline in the months to come. The SBP has revised downwards its forecast range for average CPI inflation to 4.5-5.5 percent for FY15, well below the annual target of 8 percent.

The petroleum products prices are declining from September, which controlled the inflation rate. According to the latest figures of Pakistan Bureau of Statistics (PBS), average inflation in first eight months (July-February) of the ongoing fiscal year remained at 5.5 per cent over the corresponding period last year. Meanwhile, the sensitive price indicator (SPI), which gauges weekly inflation in kitchen items, increased by 2.77 per cent in July-February 2014-2015 as against the same month of last year. Similarly, the Wholesale Price Index (WPI) based inflation increased by 0.87 percent in the period under review.

In February 2015, food and non-alcoholic beverages prices were up by 1.19 per cent and utilities (housing, water, electricity, gas and fuel) by 5.72 per cent. Health and education charges became dearer by 5.74 per cent and 14.2 per cent, respectively.

Prices of alcoholic beverages and tobacco stood at 20.23 per cent, clothing and footwear 7.7 per cent and furnishings and household equipment maintenance 5.97 percent. Charges related to recreation and culture went up 3.41 per cent and restaurants and hotel 5.53 per cent in February 2015 over the same month in 2014.

However, transportation charges were down by 3.22 per cent because of the declining petroleum prices.

Meanwhile, the PBS data showed that price of tea increased by 0.75 per cent in the month of February 2014 against January, price of tomatoes and besan enhanced by 0.68 percent, price of sugar 0.67 per cent and price of pulse mash went up by 0.6 per cent. Similarly, in non-food commodities, price of personnel equipment increased by 1.28 per cent, house rent 2 per cent and construction wage rates 1.07 percent.

Meanwhile, prices of following commodities decreased: chicken 17.95 per cent, potatoes 17 per cent and eggs 13.86 per cent during February over January.