Inflation is one of main challenges: finance ministry

ISLAMABAD: The ministry of finance has said that economic growth is showing persistent recovery but the inflation is one of the main challenges.

According to monthly economic update issued on Tuesday, the finance ministry said that economic growth is showing persistent recovery in first quarter (July – September) 2020/2021.

In absence of any adverse future shocks, the economy is on its way not only to rebound from the pandemic related crises, but also to record a reasonable growth rate for the full fiscal year.

“Presently, inflation is one of the main challenges. However, the government is taking all possible measures to control it,” it said.

Together with measures that ensure sufficient supply of goods, especially food related production, it is expected that inflation will remain under control whereas policy measures will contribute to better functioning markets.

Most importantly, although domestic economic activity is expected to recover, still the risk of pandemic attack persists if the SoPs are not fully followed.

“Thus, Pakistan’s near-term economic prospects are promising subject to reducing uncertainty and restoring business confidence,” the ministry added.

Usually main drivers of the consumer price index (CPI) are international commodity prices, especially food and oil products, the exchange rate, growth of broad money and the policy interest rate.

“However, in Pakistan most recently, CPI remained driven by higher food prices, while non-food inflation remained moderated,” the ministry added.

Supply disruption in food related commodities was mainly due to extended monsoon season which has built inflationary pressure.

In recent weeks, the international food prices have rebounded somewhat, whereas oil prices declined and the Pak Rupee exchange rate slightly appreciated against the USD, thus easing out inflationary prospects.

There is no change in Indirect tax or other fiscal measures. Likewise, interest rate is kept same as per the policy interest rate in July 2020.

“Thus, accommodative Fiscal and Monetary Policy helped in controlling core inflation. The government is making all efforts to control inflation by smoothing supply even by expediting imports of sugar and wheat, which are considered as essential food commodities.

On weekly basis, impact can be predicted from decline of 0.23 percent in SPI on 22nd October 2020. This decline occurred after seven weeks.

On the basis of current economic scenario, headline inflation is expected to remain within a range of 7.3 to 9.3 percent in October 2020.

Economic recovery has been observed from the start of the new fiscal year.

Most importantly the decrease in number of Corona virus cases and the resumption of economic activities have contributed in dampening the negative impact of health crisis on the economy.

Economic recovery was seen in Q1 FY2021 and it is expected that this trend will continue but fears and risk factors are appearing due to the possible second wave of COVID, the ministry said.

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