SBP sees Pakistan inflation at 8% in 2010

June 10, 2009

The State Bank of Pakistan said that inflationary pressures are easing and average inflation is expected to come down to 8% in fiscal year 2010.

The SBP, in its monetary policy statement said that reduced domestic demand pressure, as evident in shrinking twin deficits is expected to narrow the output gap and reduce inflation.

However, supply shocks such as power shortages and worsening law and order situation may delay the eventual fall in inflation. In fact, the persistence in inflation is largely due to these factors and is evident in various inflation indicators. Nonetheless, other supply side factors such as falling international commodity prices and improved food supply coupled with strong expectations of low inflation in the near future will have a beneficial impact on current inflation.

The SBP pointed out that declining trend in inflation now appears robust as headline CPI inflation has come down to 19.1% in March 2009 from the peak of 25.3% in August 2008.

It added that "Present declining trend is likely to continue as indicated by an expected average inflation of around 14% in Q4-FY09 and 8% for FY10.". However, due to strong inertial impact, average CPI inflation for FY09 would remain around 21%.

The Bank said that core inflation, measured by 20% trimmed mean, which remained firm around 21.7% since October 2008, declined to 19.3% in March 2009. Similarly, non-food non-energy measure has also eased to some extent. On month on month basis, both core inflation measures have reverted to levels prevailing in FY07 after rising above 2.0% during earlier month of FY09, which provides further support to expectations of falling inflation in the coming months.