Shahmeer Kazi talks about a most worrying situation
Escalation in price increases go on unabated and has put tremendous burden on the buying power of the people. The last four years have witnessed unprecedented rise in inflation that have resulted in price increases go on of essential commodities going up sky-high and there are hardly any chances of the price spiral weakening. This year, particularly, has seen decades-high inflation due to an increase in international commodity prices as well as the rupee’s depreciation. In addition, this year’s monsoon floods have caused widespread destruction to standing crops which led to a shortage of vegetables. Subsequently, the government had to remove duties on the import of onions and tomatoes from Afghanistan and Iran. Removal of subsidies on electricity earlier this year following an agreement with the International Monetary Fund (IMF) has also contributed to inflationary pressure.
Food inflation recently shot up to 30.8 per cent and 32.7 per cent, respectively, in urban and rural areas of the country. The damage done to the agriculture sector is one big reason for the higher level of food inflation but poor, least-coordinated agricultural policymaking and poorer implementation are equally responsible for keeping food prices where they are now. Pakistani financial policy makers were of the opinion that lower interest rates were a major reason for soaring prices and a weakening rupee and along with global and domestic supply shocks, were responsible for raising costs amid the economic slowdown that are spilling over into broader prices and wages, driving cost-push inflation. They proposed hike in borrowing costs aimed at targeting inflation that was also proposed to send a strong signal to the government to change its reckless fiscal course and control its spending.
In this context, however, it is pointed out that the interest rates now stand at the highest level since years but monetary tightening alone cannot contain inflation that has devastated millions of households over the last few years. The fiscal authorities must play their part such as the State Bank of Pakistan (SBP) that has stressed in its monetary policy statement that by maintaining fiscal discipline is to complement monetary tightening, which would together help prevent an entrenchment of inflation and lower external vulnerabilities. The point raised here is that whether the federal government would respond to the counsel provided by the SBP.
With crucial foreign inflows drying up in the wake of IMF review delays, chances are the bank’s move will ward off further deterioration in the balance-of-payments position. If fiscal slippages continue, the SBP would be well advised to hike the rates more aggressively to ensure the ministry falls in line. There is no other option if the price spiral is ultimately going to be controlled.
In the current scenario, milk, wheat flour and sugar are among the ten essential food commodities in the Sensitive Price Index (SPI) basket that are affected by price increases. They also include others such as onion, tomato, potato, edible oil and ghee, rice, poultry and pulses. The SPI monitors the prices of 51 essential items based on a survey of 50 markets in 17 cities across the country. During the week under review, the prices of 19 items increased, those of nine items decreased while 23 items saw no change in their prices. Repeated wheat flour and sugar crises and arbitrary price hikes of milk affect the common people most and contribute to higher food inflation. It is reported that governmental authorities are working on a detailed study to identify the measures that could be adopted to address distortions in the market of these essential items. It is widely conceded that the damage done to the agriculture sector is one big reason for the higher level of food inflation but poor, least-coordinated agricultural policymaking and poorer implementation are equally responsible for keeping food prices where they are now.
Food exports and imports have long suffered from delayed decision-making and knee-jerk reactions to global or domestic events. Two current examples are that the government is yet to finalise a decision about sugar exports and it has already announced not to allow the private sector to import wheat. In this context, what justification will be given for the sugar glut along with high increase in wheat and wheat flour prices? Pakistan’s agriculture is not suffering just because of the recent floods though the losses to the crops and livestock during the floods were huge. Perennial structural issues with our agriculture affect the availability of food for domestic markets at affordable prices and limit the growth potential of food exports. Wheat flour and sugar crises continue to hit year after year but policymakers have not done little to avoid these crises or mitigate their impact on the people of Pakistan. The reason for this lopsided situation also rest with the shortsighted policies pursued by governance segments that directly or indirectly control main food crops and the backbone of their respective supply chains. TW