Unbearable inflation in Pakistan

The price spiral goes on incessantly and there appears no chance that it will be controlled. Escalation in prices is going 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 prices 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 exports and imports have long suffered from delayed decision-making and knee-jerk reactions to global or domestic events.

Consumer prices rose significantly in on the back of onions, chicken, eggs, rice, cigarettes and fuel driving the weekly inflation to over 40 per cent for the first time in over five months. The inflation remained high as bananas, chicken, sugar, cooking oil, gas and cigarettes became costlier.

It was pointed out that short-term inflation jumped to 41.54 per cent on a year-on-year basis for the week. The hike in prices is the highest annual rise since the week ending 8 September, 2022, when inflation was 42.7 per cent. And it was above 40 per cent for the first time since 15 September, when the reading was 40.58 per cent. Of the 51 items tracked, the prices of 33 items increased, six items decreased, whereas those of 12 items remained stable. The previous week-on-week reading of 2.89 per cent reading was the highest since 27 October 2022 when the change in the index was 4.13 per cent.

Consumer prices have risen sharply over the past several months, with annual inflation staying above 20 per cent since June last year. In February, the increase in inflation was driven by a double-digit rise in all sub-indices. It is estimated that inflation on a year-on-year basis will be 28-30 per cent in coming months. This estimate is based upon uncertain political and economic environment, pass-through of currency depreciation, rise in energy prices and increase in administered prices in February. Although the State Bank of Pakistan has been enacting contractionary monetary policy, the inflationary expectation would take some time to settle. The centre, in liaison with provincial governments, is closely monitoring the demand-supply gap of essential items and taking necessary measures to stabilise their prices.

However, the government has been taking strict measures under IMF conditions that are likely to further cool the economy and stoke inflation. The government has already taken a string of measures, including adopting a market-based exchange rate; a hike in fuel and power tariffs; the withdrawal of subsidies, and more taxation to generate revenue to bridge the fiscal deficit. Officials say the lender is still negotiating with Islamabad over power sector debt, as well as a potential rise in the policy rate, which currently stands at 17 per cent.

Inflation in urban and rural areas increased to 24.4 per cent and 32.3 per cent year-on-year, respectively. Core inflation, which does not include volatile food and energy prices, also slightly rose to 15.4 per cent in urban areas and 19.4 per cent in rural areas. Consumer prices have risen sharply over the past several months, with annual inflation staying above 20 per cent since June last year. Year-on-year inflation of 27.6per cent in January was the highest since May 1975 when it stood at 27.8 per cent. The figure was higher than the government’s expectation of 26 per cent which itself was more than double the budgeted 11.5 per cent target.

Analysts said that the inflation statistics were expected after the rupee’s fall over the last few days, the removal of subsidies and rising taxes.

This takes average inflation for the seven months of the current fiscal year to 25.4 per cent compared to 10.3 per cent in the same period last year. Many analysts also point out that the high food inflation is a killer. The overall rate actually masks or understates the misery of the people and what is really going on behind these numbers. In January, the data showed that annual change in general inflation in most groups was in double digits.

The categories that saw the highest jump included perishable food items, 61.63%, non-perishable food items 40.3 per cent, transport 39.1 per cent, beverages and tobacco 36.3 per cent, restaurants and hotels 30.1 per cent, furnishing and household equipment maintenance 29.9 per cent, miscellaneous goods and services, 28.69 per cent, health, 18.73 percent, clothing and footwear, 16.76 per cent, education, 10.58 per cent, housing and utilities, 7.83 per cent.

The already high inflation is expected to go up in the following months mainly because of increase in fuel prices.