The food inflation to be 10.3% in the initial eight months (July-Feb) of fiscal year 2006-07 according to the finance ministry of Pakistan.

Pakistan's finance ministry has estimated the food inflation to be 10.3% in the initial eight months (July-Feb) of fiscal year 2006-07, as opposed to 7.6% during the same phase in 2005, thanks to a surge in costs of various food products like lentils, milk, meat, poultry, onion, potatoes, tomatoes, beverages, etc due to a disparity in the demand and supply of these products, according to a report in Daily Times.

The Feb 2007 drop in inflation is mainly credited to a sudden drop in the core inflation (non-food items) from 8.2% in Feb 2006 to 5.4% in Feb 2007.

The impending shortfall of wheat, flour, and meat precipitated the inflationary spiral. The escalation in prices of world oil together with weakening rates of exchange and increase in house rents raised the normal cost of non-food items, amplifying the non-food CPI inflation countrywide.

With time, the uncertainty of food security leads to growth of food shortage in Pakistan. The reasons, among others, are hike in market value of food products relative to salaries, disorganized food distribution, slackened growth in public sector, and inferior investment in socio-economic segments.

By price-fixing wheat and other foodstuffs, the Federal Government intended the reduced labor wages to level with the cost of wheat that was greatly reduced by the Pakistan government. The government has also resolved to trim the L/C margin for entrepreneurs to guarantee sufficient supply of products in the market. Government plans to reopen closed warehouses to step-up the supply of grains in the market.

According to a research analyst at RNCOS, "the issue of inflation, that take its toll on poor and middle-income section in Pakistan, should be addressed comprehensively. Coupled with fiscal policy steps to check inflation, the State Bank needs to tighten its monetary policy to achieve this objective".

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