Unending inflation

ByNoor Israr

Discerning taste in music and is currently studying development economics at UCF


June 11, 2022

Unending inflation

Noor Israr shows apprehension about the rising price levels in the country

Pakistan is experiencing unprecedented spate of price increase and this price hike has spared no quarter linked with everyday life. The most worrying aspect is that the price hike has remained consistent since the last 64 weeks implying that it is running amock for more than a year without relenting a bit. The financial ability of the common man of the country has reached its rock-bottom and he is left with no option but to put up with horrendous prospects of hunger and deprivation. The country is full of stories of deprivation that are heart-rending and adding to the pain is the inability of the governance sector to ameliorate the sufferings of the people. The current situation faced by the people of Pakistan is the first of its kind and the most unnerving reality for them is that there is hardly any chance of the galloping price hike coming to an end and virtually nil chance of it ever getting reduced. The arguments about a global trend of price escalation are relevant in many aspects but the Pakistani people are singularly devoid of any price indexation that softens the blow of rising Unending inflation.

It is reported that the year-on-year increase in SPI was 20.04 per cent and since 25 February, 2021, this is the highest increase when the SPI jumped 2.41 per cent on a week-on-week basis and 13.89 per cent on year-on-year basis. The impact of the increase of Rs.60 per litre of petrol and other petroleum products appear to be going towards 25 to 30 per cent. Soon after assuming office, the Shehbaz government disbanded the dedicated National Price Monitoring Committee, which was led by the finance minister, while provinces were represented by provincial chief secretaries. The committee met every Monday to monitor the prices of essential food commodities. This implies that currently there is no yardstick available with the government to monitor the price mechanism in the country. The result is that prices are going up without any control rendering the entire administrative machinery practically redundant.

All the three inflation gauging indicators — CPI, Sensitive Price Index (SPI) and Wholesale Price Index (WPI) — measuring inflation saw an unprecedented spike in prices of almost every item of consumption. The average inflation measured by SPI increased to 14.1 per cent in May from 13.2 per cent a month earlier while WPI surged to 29.6 per cent from 28.1 per cent. The excessive increase in WPI indicates a rise in the prices of non-perishable products in the coming months. The average inflation during the first 11 months of the fiscal year 2022 rose to 11.29 per cent.

In 2020-21, annual CPI inflation was recorded at 8.90 per cent against 10.74 per cent the previous year. The PBS data showed that food inflation remained on the higher side during the first 11 months of 2022, as it shot up to 15.5 per cent year-on-year in May and 1 per cent month-on-month in urban areas, whereas the respective growth in prices in rural areas was 19 per cent and 1.3 per cent registering a reversal of the trend where urban areas usually experience higher food prices. The SPI increased by 1.02 per cent for the lowest income group, earning below Rs.17,732 per month and by 2.44 per cent for the group with a monthly income of above Rs.44,175.

It is now reported that inflation has increased by 12.36 per cent in urban areas and 15.88 per cent in rural areas. The inflationary trend was led by transport, which saw a 31.77 per cent rise, followed by food at 17.25 per cent. It was also reported that the prices of perishable food items increased by 26.37 per cent and non-perishable items by 15.94 per cent. Other categories that saw a double-digit increase included furnishing and household equipment maintenance registering an increase of 16.11 per cent, restaurants and hotels by 15.98 per cent, miscellaneous goods and services by 13.32 per cent, recreation and culture by 12.28 per cent, clothing and footwear by 11.29 per cent, health by 10.59 per cent and non-alcoholic beverages and tobacco by 10.13 per cent. At the same time, prices of meat, fruit and vegetables also registered a persistent increase in major urban and rural centres and traders took undue advantage of an ineffective price regulatory system. Non-food inflation in urban centres increased by 10.4 per cent year-on-year and 0.2 per cent month-on-month, whereas in rural areas it rose by 13.1 per cent and 0.5 per cent, respectively.

The most pressing issue for the people is the consistent rise in prices of food items with wheat flour registering an increase of 10.51 per cent, onions by 36.17per cent, chicken by 16.98 per cent, eggs by 13.07 per cent and other similar consumables. Official sources have highlighted accelerating inflation along with other factors such as high external deficits, exchange rate depreciation, declining foreign exchange reserves and mounting uncertainty, among the challenges faced by the country in sustaining growth achieved in the last fiscal year. It is reported that the primary contributors to increasing inflation were the surge in international commodity prices and significant exchange rate depreciation.

In fact, the depreciation of the rupee, both against the US dollar and on a trade-weighted basis, against the currencies of Pakistan’s main trading partners is primarily a reflection of the inflation differential between the country and its partners. Further, relatively high domestic inflation is compensated by rupee depreciation. However, currency depreciation itself feeds into higher domestic inflation. In this sense, Pakistan is caught in a vicious inflation/currency depreciation spiral. Many experts point out that the predicament to stop this cycle is to pursue restrictive fiscal and monetary policies, coupled with policies and announcements that restore market agents’ confidence. Moreover the price regulatory and control mechanism are required to be tightened.

The impact of increase in prices of petroleum products is yet to come as it is widely acknowledged that this factor invariably causes spillover effect on supply of commodities that may lead to unexpected inflation in the coming months. The official sources are broadly hinting at further increasing the rates of petroleum products and electricity tariff as part of prior action to strike a staff-level agreement with the International Monetary Fund and this may take place probably after the presentation of the budget for fiscal year 2022-23. The weakening currency has already spiked import-led inflation in the country, which is expected to escalate further in case no corrective measures are taken.

At the same time, the crisis is still looming for the edible oil sector as Indonesia — the biggest exporter of palm oil — has suspended supplies due to local shortages, leading to an increase in prices of vegetable ghee and cooking oil in Pakistan. The government has withdrawn subsidies on ghee and cooking oil at Utility Stores of Pakistan. It has increased ghee and cooking oil rates by an unprecedented Rs.208 and Rs.213 to an all-time high of Rs.555 per kg and Rs.605 per litre, respectively. At the same time, the government has slapped a ban on import of food items that are consumed as an alternative or to bridge the gap in local production of those products. The drop in supplies of those products will further push up their prices for consumers making life miserable for the hapless citizenry that has already witnessed a major drain on their ability to buy. TW

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