FeaturedNationalVOLUME 17 ISSUE # 7

Crushing prices: No hope in sight

Frequent electricity and fuel price hikes have created the worst inflation in the country. The Pakistani rupee continues to slide down against the dollar, which has further compounded the problem. The state of affairs is already beyond the patience threshold of the common man but international institutions have warned that prices would continue to climb in Pakistan in the months and years to come.

The government claims its policies are aimed at providing relief to the common man. Prime Minister Imran Khan daily informs people that he knows inflation is the biggest problem of the country and he is taking measures to control it. However, all efforts of the government have proved to be counterproductive. Prices of food and other essentials increase on a daily basis and the government’s helplessness shows it has completely failed to provide relief to people. The government claims that people’s purchasing power has increased in its three years and they are better off today. It amounts to rubbing salt into the wounds of the common people. As inflation continues to increase, the government has only piled misery on the common people and they have reached the conclusion that the government has no qualms about overburdening them and leaving them at the mercy of profiteers and hoarders.

International institutions say inflation in Pakistan is the highest in the region and the situation will not change in the months and years to come. The Asian Development Bank (ADB) projected that inflation in Pakistan would remain the highest in the region in the current year. The World Bank said that inflation would edge up in FY22 with domestic electricity tariff hike announced in October 2021, and higher oil and commodity prices before moderating in FY23. In its latest report, it said that despite inflation slowing to 8.9pc in FY21 from 10.7pc in FY20, headline consumer price inflation remained elevated, mostly because of high food inflation, which is likely to disproportionately impact on poorer households that spend a larger share of their income on food than on non-food items.

The report says Pakistani rupee reached a more than two-year high of 152.2 against the US dollar on May 7, 2021, it has subsequently been depreciating, losing more than 10pc of its value against the greenback in just under five months, to a record low of PKR171.1 on October 14, 2021. The relatively sharp decline in the rupee can be attributed to a few significant global, regional, and Pakistan-specific developments that have occurred in recent months.

The Economist Intelligence Unit (EIU) has warned that inflation will remain high in Pakistan for the next six months and the rupee is likely to continue on a depreciatory path despite a support package from Saudi Arabia. “Strengthening inflationary headwinds are being driven largely by rapid import growth, exacerbated by a surge in global commodity prices, as the economy recovers from the disruption caused by the COVID-19 pandemic,” it said, adding, “We continue to expect that upward pressure on consumer prices will persist during the first half of 2022, as the global economic recovery is likely to keep commodity prices elevated and the rupee will continue on a depreciatory path despite short-term relief in the form of a financial assistance package from Saudi Arabia due to Pakistan’s persistently wide trade deficit and strong inflationary pressures.”

The EIU predicted that the State Bank of Pakistan will raise rates again at its next monetary policy meeting on November 26. “We maintain our forecast of an elevated inflation rate of 9.2 per cent in 2021, eliciting further policy tightening from the SBP,” it said.

The International Monetary Fund (IMF) has also raised its inflation outlook, urging policymakers to stand ready to take swift action if the recovery strengthens more quickly than expected or inflation risks become pronounced. It warns that the negative impact of inflation could grow further, if the pandemic-related supply-chain disruptions turn out to be more damaging and long-lasting. As a result, the IMF warned that “although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible.”

It says prices from food to medicine to vehicles have risen world-wide, threatening the global recovery. It expects consumer-price inflation in advanced economies to reach 2.8pc in 2021 and 2.3 per cent in 2022, up from 2.4pc and 2.1pc, respectively, in its July report. Inflationary pressure is even more pronounced in emerging and developing economies, with consumer prices rising 5.5pc this year and 4.9 per cent next year.

The Sensitive Price Indicator (SPI) for the week ended November 11, 2021, recorded a significant increase of 1.81 percent due to an increase in the prices of tomatoes (18.70pc), diesel (6.04pc), petrol (5.78pc), cooking oil (4.27pc), vegetable ghee (3.37pc), banana (3.04pc), bread (2.84pc), electricity for Q1 (2.74pc), and eggs (1.82pc), says the Pakistan Bureau of Statistics (PBS). During the week, out of 51 items, prices of 30 (58.82pc) items increased, six (11.76pc) items decreased, and 15 (29.42pc) items remained stable.

There are some indicators that the economy is heading in a positive direction, but the common people have suffered badly. The government does not hesitate from overburdening the people with frequent price hikes. People are worse off in the PTI government. They have been forced to miss the past Pakistan Muslim League-Nawaz (PML-N) government despite its alleged corruption and ills. Prices and unemployment have reached their highest level in Pakistan. Inflation in Pakistan could be 10.2pc on an annualised basis, which by 2025 is expected to remain around 8.6pc and the unemployment rate, which till this fiscal year was 4.5pc, may further jump to 5.1pc. The government aims to introduce more reforms in the next few months. It means there is no prospect of relief for the people anytime soon and they will continue to suffer.