KARACHI - There are five developments at international and domestic levels that would keep the inflation far above the target of 11 per cent for fiscal year 2008-09. The oversized spike in inflation owes to an unprecedented rise in the prices of food, fuel, other commodities at the international level and the inflationary pressure is not likely to ease, at least, in next two to three years owing to the second round effects of previous food/energy price shocks, a gradual removal of fuel and power subsidies in the country, a weaker rupee, higher import prices and monetary overhang from the unprecedented government borrowing from the SBP for budgetary financing. Ministry of Finance has mentioned it in its profile of Inflation for the month of August 2008. According to Ministry, the overall CPI-based inflation registered a sharp increase in August 2008 as against the corresponding month of last year. The overall inflation surged to 25.3 percent in August 2008 as against 6.4 percent in the corresponding month of last year (August, 2007). The record breaking surge in overall inflation of 25.3 percent in August, 2008 is largely attributed to a sharp pick-up in both food (34.0%) and non-food (18.7%) inflation which increased from 8.6 percent and 4.8 percent respectively from August, 2007. The non-food Non-Energy Inflation also exhibited the same increasing trend and it stood at 18.3 percent in August, 2008 as against 5.3 percent in the corresponding month of last year. A very low base of last year as well as massive increases in both oil and commodity prices have augmented this extreme inflationary trend in Pakistan. Inflation for the current fiscal year 2008-09 has been targeted at 11.0 percent. Global food and fuel crises have impacted Pakistan heavily, resulting in massive surge in inflation in general and food inflation in particular. During the first two months of the FY09, average inflation stood at 24.8 percent as compared to 6.4 percent last year. Non-food non-energy inflation was 17.6 percent as compared to 5.2 percent and non-food inflation averaged 18.0 percent during July-August 2008-09 as against an average of 4.8 percent in the same period last year. The sharp pick up in non-food inflation owes heavily to transport (38.8%), fuel & lighting (20.7%), cleaning/laundry (18.8%), education (12.7%), and house rent (13.8%) etc. Fuel & lighting and transport sub-indices have surged mainly on account of the pass through of higher international oil prices to domestic consumers and are likely to increase even more with the gradual removal of subsidies on these items. The food inflation increased substantially to 33.9 percent in the first two months of current fiscal year as against 8.5 percent in the same period last year. It is a well-known fact that food inflation has emerged as a major source of concern for policy makers around the world, including Pakistan. Food inflation in Pakistan has been fueled by a combination of domestic demand driven factors (rising per capita income), local supply shortage and global trends in the prices of essential commodities. Higher prices of edible oil (palm oil and soybean) and dependency on their imports transmitted higher international prices to domestic prices. Similarly, the domestic prices of wheat and rice also followed the global trend and witnessed sharp increases. To encourage farmers to grow more wheat and check cross-border smuggling the government has increased the procurement price of wheat from Rs. 425 /40kg to Rs 625 /40kg an increase of 47 percent. Livestock and dairy products (meat and milk) also registered sharp increases because of their rising domestic demand on the one hand and increase in the prices of feedstock on the other.