Policymakers in the caretaker setup fear that food inflation may be difficult to manage in the coming months. It would be a sensitive issue for the elected government to tackle.

The last three months witnessed double-digit food inflation-- also fuelled by rising food prices all over the world.

The consumers have consistently observed in the last eight or so years that whenever prices increased in the international market, the local tycoons -- with representatives in the government – linked their low priced domestic produce with international market prices.

But when the trend reversed, they wasted no time in persuading the government to levy regulatory duties to deny the benefits of decrease in international market to local consumers. The official figures for November show that food inflation rose by 12.45 per cent over the same month last year and pushed the overall consumer price index to 8.67 per cent. The increase comes on the back of 14.6 per cent and 13 per cent rise in food inflation in October and September respectively--- the highest in the last five years.

However, the 0.57 per cent decline in food inflation in November over October indicates that that food prices may start coming after having hit their peak. But the wedding season and disruption in supply of some essential commodities may still pose a problem till the first week of February. The wheat prices continue to rise.

Many factors are responsible for this highest ever food inflation witnessed over the last five years, including lack of coordination among various policymaking ministries, dispute over accuracy of statistics, which become base for policy making leading to huge wastage and export of raw vegetables and fruits to neighbouring countries.

Often, the lack of coordination among various ministries is responsible for hike in prices of essential commodities. Former Prime Minister Shaukat Aziz had allowed export of 0.5 million tons of wheat at $200 per ton on a projection of a 0.8 million surplus stocks in May last. But within a week, the price of flour shot up and resulted in suspension of wheat export. After the dramatic increase in flour price, the government had to import about one million tons of wheat at $440 per ton.

The reasons for flour price hike are yet to be identified. Though the government had collected information about the hoarders -- around 90 per cent hoarding was done in Punjab alone -- but it avoided taking action against them due to upcoming elections.

Now, the caretaker government has withdrawn duty on export of sugar and enhanced tariff walls to provide protection to the sugar tycoons. The decision may result in price rise. During the last two years, a sum of more than Rs12 billion had been spent in subsidising the price of sugar.

Ironically, the President has promulgated an ordinance for taking action against the hoarders, but no action has so far been taken against them.

A finance ministry report released recently also admitted that food inflation has emerged as a major source of concern for policymakers in emerging Asian economies, including Pakistan. Food prices rose at an average of 10.1 per cent and contributed 55 per cent to overall inflation in Asia, excluding Japan. The upward trend in food prices is most evident in China (18.2pc), India (8.4pc), Indonesia (13pc) and Pakistan (14pc).

The State Bank of Pakistan (SBP) in its recent report recorded food inflation (YoY) at 14.7pc in October 2007 – highest since May 2005 – from 10.5 per cent in October 2006. This sharp increase is mainly due to an increase in the prices of onion, tomatoes, edible oil, different types of rice, wheat, eggs, fresh milk and maida, etc.

Out of the total 124 commodities included in the food group, 53 commodities including tomatoes, onion, eggs, some fruits, cooking oil, different types of rice and vegetable ghee exhibited YoY inflation in the range of 10 to 100 per cent in October 2007.

The combined weight of food items in Consumer Price Index was about 60 per cent.

With this surge in food prices, the overall inflation measured through consumer price index (CPI) was up by 9.31 per cent in October 2007 over last year. An increase of 1.23 per cent was recorded in October 2007 over September 2007.

Non-food inflation (YoY) was recorded at 5.4 per cent in October 2007 compared to 6.4 per cent in October 2006 due to fuel prices remaining on hold for most of the year. This capping of fuel prices cost government billions of rupees, but it helped ease non-food inflationary pressure on the economy.

Analysts said the impact of 15 per cent increase in salary announced last year has been offset by almost similar range of increase in prices of food items. They said the money supply recorded more than 19.5 per cent increase last year and will have an impact on core inflation —non-food, non-energy — this year. The core inflation is going to rise further, they added. The State Bank had tightened monetary policy to control core inflation which is around five per cent.

The inflation target for 2007-08 has been set at 6.5 per cent and the inflation figures suggest that this target is not likely to be achieved.

In the absence of effective consumer protection laws, manufacturers of packed food increase their prices at will. Multinationals which dominate the packed food industry are of course sacred cows which cannot be touched.