The core inflation eliminates energy and food products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.
Official figures released yesterday indicated that the core inflation in the first four months of the current fiscal year also witnessed slight decrease as it stood at 5.4 per cent as compared to 6.3 per cent during the same period of the last year.
Non-food inflation registered a decline down from 6.4 per cent in October, 2006 to 5.4 per cent in October, 2007 because of freezing of oil prices for the last few months.
Despite this slight decrease in core inflation and non-food, the overall inflation stood at 9.3 per cent in October, 2007 as against 8.1 per cent in the corresponding month of last year. This increase in overall inflation in October, 2007 is attributed to a sharp pick up in food inflation, which moved from 10.5 per cent in October, 2006 to 14.6 per cent in October, 2007.
According to an official report of the finance ministry, food inflation, on the other hand, accelerated to 14.6 per cent in October, 2007 as against 10.5 per cent in the same period last year owing to an extra-ordinary surge in demand for food items, particularly fruits, vegetables, milk, meat, poultry, cooking oil during the month of Ramadan and the commencement of the wedding season after the Eid festival in Pakistan.
Furthermore, the month of October also witnessed sharp pick up in wheat and flour prices, totally driven by "extra market forces". Although the prices of wheat and wheat flour have retreated lately, their contribution to the sharp pick up in food inflation were already realised. Food inflation is expected to ease off in the coming months.
Food inflation has emerged as a major source of concern for the policy-makers in emerging Asia, including Pakistan. Food prices rose at an average of 10.1 per cent and contributed 55 per cent to overall inflation in Asia ex-Japan. The upward trend in food prices is most evident in China (18.2 per cent), India (8.4 per cent), Indonesia (13.0per cent) and Pakistan (14 per cent).
During the first four months (July- October) of the FY08, average inflation declined to 7.6 per cent as compared to 8.3 per cent last year and 8.6 per cent the year before. In other words, the average inflation in the first four months of the current fiscal year is still the lowest in the last three years.
The non-food inflation averaged 5 per cent during July- October 2007-08 as against an average of 7.1 per cent in the same period last year. Food inflation increased slightly to 11.2 per cent in the first four months of current fiscal year as against 10 per cent in the same period last year.
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