P: Provisional
1. The specific items in the CPI, WPI, and SPI baskets, as compiled by the Federal Bureau of Statistics (FBS) has not changed since FY91. In other words, it is the same basket of goods that had recorded price increases in the range of 11.8 to 13.0 percent in FY97.

2. Given the pattern of income distribution in Pakistan, the official index of consumer prices (CPI) correctly assigns more weight to items, having larger share in the expenditure of low income classes.

3. As shown later, using a numerical example, a narrow assessment of price changes has a tendency to focus on those retail items that have posted the sharpest increase. Even averaging out the price increase will upwardly bias the resulting price index. However, if these items are put within context of the actual share of income spent (on these items) by the average family in Pakistan, the resulting price increase is invariably lower. These adhoc calculations are often used to challenge official statistics.

Macroeconomic factor during FY00 played an important role in keeping the rate of inflation low:

Monetary expansion at 9.4 percent remained within the Credit Plan target of 9.4 percent. Furthermore, with only a Rs 74.2 billion increase in M2 against a permissible target of Rs 164 billion (which was revised to Rs 93.3 billion afterwards) in FY99, the lagged impact of this low monetary growth has also had an impact during FY00.

Improved availability of agriculture and food products played a key role in keeping inflation under check; prominent among these were milk, wheat, rice, beef, mutton, and poultry meat, with domestic production exceeding the population growth rate. In fact, per capita availability of wheat increased by 9.6 percent, rice by 5.0 percent, milk by 0.6 percent and meat by 0.4 percent in FY00.

Growth in the production of non-consumer items like textiles (by 13.0 percent), chemicals (by 11.4 percent), and metal industries (by 13.4 percent), also played an important role in containing the growth in WPI.

Exchange rate stability during FY00, together with fall in unit values of imported food items (e.g. milk & cream by 8.8 percent, edible oil by 36.8 percent and pulses by 6.4 percent) also kept inflation low.
Although, international prices of crude oil (Brent Crude) rose by 93.8 percent during FY00, retail price increases of only 7.2 to 10.5 percent were passed on to domestic consumers (for kerosene oil, petrol and diesel).

Although there has been some resentment against these price increases, if the government intended to secure its surcharge revenues, the increase in retail prices would have been much higher. The partial pass-through helped maintain an overall cap on inflation, as petroleum products have an extensive spillover in the economy.

Following the decline in six-month T-Bills rates from 10.6 percent in June 1999 to 7.2 percent in June 2000, the cost of working capital also fell in FY00. In terms of the weighted average lending rates (charged by scheduled bank), these declined from 14.6 percent in June 1999 to 12.9 percent in June 2000.

Consumer Price Index
The Consumer Price Index (CPI) during FY00 registered an increase, on average basis, of 3.6 percent, which was the lowest after FY69 when an increase of 1.6 percent was recorded. Downward pressure on consumer prices came from seven of nine subgroups of the CPI basket. However, the impact of POL products did fuel inflationary pressures; Fuel & Lighting and Transport & Communication posted increases of 6.0 and 8.6 percent in FY00, compared with 1.7 and 8.3 percent in FY99.

Table III.2 shows price changes of 460 items in the CPI basket for the same period in FY00 and FY99. Out of 460 individual price changes, 211 increases were in the range of 0 – 5 percent in FY00, in contrast with 181 increases in FY99. Not only did more items show subdued price changes in FY00, these 211 items represent a weight of 55.8 compared with 23.7 for the 181 items that posted similar increases in FY99.

Table III.2
Distribution of Price Changes of Items of CPI Basket

As shown in Table III.3, items listed in the first and second columns played a dominant role in decreasing inflation, while items listed under the third and fourth, exerted increasing pressure. However, the impact of items for which prices declined or registered a subdued increase was much stronger, which helped in containing the inflation rate to 3.6 percent.

Table III.3
Selected Items of CPI Classified by Range of Price Changes (FY00)