Inflation likely to remain 17pc in next six months

PIDE Inflation Expectations Survey for March expects 15.5 per cent inflation for the current month and 16.4 per cent for next month. — File Photo ISLAMABAD: Results of a survey on 'inflation expectations conducted by the Pakistan Institute of Development Economics (PIDE) have indicated that the expected inflation rate during the next six months will remain 17 per cent and 16.6 per cent for the current year. Persistent high inflation, policy credibility; political crises in some of the oil-exporting countries, implementation of RGST and prevailing law and order situation are fueling public expectations about future high inflation, according to the findings of the survey released here on Friday. PIDE Inflation Expectations Survey for March expects 15.5 per cent inflation for the current month and 16.4 per cent for next month. While expecting high inflation and high unemployment, respondents of survey remained skeptical about the growth rate in future. They think that inflation in Pakistan is largely driven by food prices, bad governance and oil prices. According to survey results, tight monetary policy is hardly the panacea to meet the inflation target of 9.5 per cent. Supply shock is the major source of inflation in Pakistan, so the only tight monetary policy is not the solution of the problem. Monetization of fiscal deficit is also contributing factor in inflation. In response to the question regarding effectiveness of the policy to curb inflation, a vast majority of the respon- dents (81.7 per cent) suggest that both monetary and fiscal policy be used to curb inflation. Experts believe that government should avoid monetization of fiscal deficit to control inflationary pressure. About 50 per cent respondents were in favour of easy monetary policy and 30 per cent prefer tight monetary policy for revival of the economy. Exchange rate is an important channel through which monetary policy affects output and prices. Higher interest rate makes domestic financial assets attractive and this induces the appreciation of the domestic currency. But due to lack of competitiveness of the external sector of the economy, domestic currency is continuously in pressure and 61.5 per cent respondents are expecting that domestic currency will depreciate in next six months. About 20 per cent of the respondents expect that exchange rate will appreciate in the coming months, while the remaining are of the view that there will be no change in it. Survey results indicate that experts are skeptical about growth rate. About 47 per cent are of the view that growth rate will remain the same in the coming months whereas 39.1 per cent are expecting low growth in the coming months. A majority of the respondents considered that government policies are ineffective to boost growth and reduce unemployment in the country. A vast majority (68.8 per cent) of the respondents are expecting high unemployment in the next six months.