The people of Pakistan are facing two kinds of floods these days, one after monsoon rains and the other of high prices because of national and international reasons. Floodwaters will subside in the weeks to come but their bad effects on Pakistani lives and the economy would be felt for a long time. The sufferings of the common people will be compounded by unprecedented inflation.

According to initial estimates by the government, Pakistan may have suffered $10 billion to $12.5 billion losses, besides over 1000 deaths in the floods. According to national and international projections, inflation will remain high in Pakistan in the months to come. According to the government, it would touch 30pc for the current fiscal year. However, our experience says the inflation rate always exceeds the government’s projection by a large margin.

The International Monetary Fund (IMF) has also warned of high inflation in Pakistan. In its latest report, it said the average Consumer Price Index (CPI) inflation was expected to surge to 20pc in the current financial year while core inflation would also remain elevated due to higher energy prices and the rupee’s decline. “Spillovers from the war in Ukraine through high food and fuel prices, and tighter global financial conditions will continue to weigh on Pakistan’s economy, pressuring the exchange rate and external stability. Policy slippages remain a risk, as evident in FY22, amplified by weak capacity and powerful vested interests, with the timing of elections uncertain given the complex political setting. Sociopolitical pressures are expected to remain high and could also weigh on policy and reform implementation, especially given the tenuous political coalition and their slim majority in Parliament,” the IMF observed. To combat inflation, the State Bank of Pakistan (SBP) should remain ready to continue the tightening cycle, it suggested.

Weekly inflation continues to rise due to an increase in food and energy prices, reaching a record 45.50pc year-on-year (YoY) on the week ended on September 1, according to data released by the Pakistan Bureau of Statistics (PSB). Earlier, the highest ever year-on-year increase in weekly inflation, measured by the Sensitive Price Index, was 44.58pc, recorded for the week ending on August 25 and 42.31pc in the week ending on August 18. The latest data shows that the SPI rose by 1.31pc on a week-on-week basis, mainly because of higher food prices. The week ending July 28 saw the highest week-on-week increase in inflation, at 3.68pc. Rising vegetable prices due to damage to crops after heavy rains and floods and a massive hike in electricity rates have also contributed to higher prices. The damage to standing crops is feared to push up the prices of vegetables in the coming weeks. The government has exempted duty and taxes on the import of tomatoes and onions.

The government has set a modest annual inflation target of 11.5pc for the current fiscal year. However, the Federal Board of Revenue, which uses inflation as one of the measures to gather additional taxes from consumers, has projected inflation at 12.8pc. Independent economists estimate inflation to remain at 25pc to 30pc. 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 31 out of 51 items increased, three decreased, and 17 remained stable.

The highest week-on-week increase was noted in the prices of onions at 42.17pc, tomatoes 13.25pc, moong 7.94pc, potatoes 6.97pc, eggs 3.84pc, chicken 3.25pc, gram (pulse) 2.89pc, wheat flour 1.49pc, mash 1.26pc, and bread 1.22pc. On a year-on-year basis, the items whose prices jumped the most included onions 240.15pc, tomatoes 219.99pc, diesel 114.08pc, petrol 98.73pc, masoor 82.44pc, cooking oil 5 litre 70.60pc, mustard oil 67.50pc, washing soap 64.81pc, vegetable ghee 2.5 Kg 63.70pc, electricity 63.01pc, gram (pulse) 58.54pc, mash 49.36pc, and LPG 45.23pc.

Headline inflation measured by the Consumer Price Index (CPI) surged to a nearly 49-year high of 27.3pc in August from a year earlier. Price hikes in staples, including vegetables, wheat and cooking oil, led to high inflation. In July, annual CPI inflation was 24.9pc, the highest in over 14 years. By contrast, August’s 27.3pc inflation was the highest on record since 1973-1974. The CPI index has since mostly remained below 15pc, except in November 2008, when it was recorded at 24.3pc.

Inflation has been on the rise after fuel prices skyrocketed since the last week of May when the new coalition government scrapped fuel subsidies to tame the surging fiscal deficit and revive a stalled IMF loan programme. A weak rupee has added to the problem. According to estimates, the rupee will remain under pressure against the rising dollar. The dollar index is now at its 20-year high. A strong dollar has serious consequences for developing countries as most of their debt is dollar denominated. However, as the Fed eyes another 75 basis point interest rate hike, the dollar’s strength can pose significant challenges to Pakistan’s currency and its imports, widening trade deficit and increasing inflation.

On the other hand, the government plans to increase the power tariff and oil and gas prices under an agreement with the IMF, which means people will continue to suffer in the months to come. Their miseries will be compounded by floods, which have damaged crops and vegetables in all provinces.