High inflation expected in coming months: PIDE Survey

Inflation

According to inflation expectations survey released by Pakistan Institute of Development Economics (PIDE), people are optimistic about increase of growth rate in the coming months. However, public is also expecting high inflation and unemployment in the coming months, the survey revealed.
According to respondents, persistent high inflation, policy credibility and prevailing law and order situation are the major sources of public expectations about future high inflation. Respondents think that inflation in Pakistan is largely driven by bad governance, food prices, utility prices and oil prices. According to survey results, only a high policy rate is not suitable to meet the inflation target (i.e. 12 per cent).
In the current PIDE Inflation Expectations Survey, respondents expect 15 per cent inflation for July 2011 and August 2011. Results also indicate that expected inflation will remain about 15 per cent for the next six months and 15 per cent for the current year (2011-12). According to respondents (44.4 per cent), persistence of high inflation is fuelling public expectations about future high inflation, followed by policy credibility (20 per cent), law and order situation (17.7 per cent), political crises in some of the oil producing countries and implementation of R-GST (13.3 per cent). According to the survey 36.4 per cent respondents think that bad governance is the major cause of high inflation.
Other important causes are food prices (29.5 per cent), utility prices (22.2) and oil prices (15.9 per cent) are the other major contributor of high inflation in Pakistan, followed by gold prices, money supply and fiscal deficit. In response to a question regarding the effectiveness of policy to curb inflation, a vast majority of the respondents (91.3 per cent) suggest that both monetary and fiscal policy should be used to curb inflation.
Monetary and fiscal policy in isolation is not an effective way to control inflation. Pak rupee is continuously under pressure since last several months. According to the results of survey 75.6 per cent of the respondents expect that the rupee will depreciate in the next six months. About 15.6 per cent of the respondents expect that exchange rate will appreciate, while the remaining respondents are of the view that there will be no change in it in the next six months Survey results indicate that experts are optimistic about growth rate in the next six months.



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