FeaturedNationalVOLUME 19 ISSUE # 18

Escalating inflation and impending electricity price hikes

The latest figures released by the Pakistan Bureau of Statistics paint a stark picture of the country’s economic landscape, particularly concerning inflation. According to recent data, short-term inflation has surged significantly, registering at an alarming 32.89% year-on-year for the week ending March 14. This surge can be predominantly attributed to the relentless escalation in prices of essential commodities, especially vegetables and other food items.

A deeper dive into the yearly analysis reveals staggering increases in gas charges for the first quarter, with a jaw-dropping surge of 570%. Such drastic spikes in essential utilities further exacerbate the inflationary pressures already burdening the people. The latest reading of the Sensitive Price Index (SPI) stood at a concerning 327.21, a notable uptick from the previous week’s 322.86 and a stark contrast to the 246.22 recorded just a year ago.

The SPI, which serves as a barometer for weekly price fluctuations, experienced a 1.35% increase compared to the preceding week, marking the third consecutive week where it has surpassed the daunting 32% threshold. Unfortunately, this surge in inflation seems to be following a distressingly familiar pattern, with both retailers and wholesalers flouting official price regulations with impunity, pushing the cost of living beyond the means of ordinary citizens already grappling with inflated utility bills.

As the holy month of Ramadan approaches, the situation only seems to worsen, with retailers resorting to releasing hoarded low-quality produce at inflated prices, further straining household budgets. Regrettably, the regulatory mechanisms tasked with curbing such exploitative practices appear ineffective, with a disproportionate focus on penalizing retailers while wholesalers operate with impunity.

What’s disheartening is the government’s apparent obliviousness to the gravity of the situation. It’s evident that this isn’t merely a market pricing issue; it’s a systemic failure that threatens the economic stability of the country. The relentless rise in inflation not only erodes the purchasing power of the populace but also undermines efforts to stimulate economic growth, particularly at a time when industries are already grappling with numerous challenges.

The recent hike in taxes and tariffs, coupled with inflated utility bills, has fueled cost-push inflation, complicating the State Bank’s efforts to maneuver interest rates effectively. In essence, the unchecked inflationary spiral poses a grave threat to both the economy and the welfare of the Pakistani populace. The prevailing situation of soaring inflation in Pakistan is not just an economic issue; it’s a social crisis with potentially dire consequences. Approximately 40 percent of the population teeters on the brink of poverty, and the middle-income bracket is also feeling the squeeze caused by the relentless inflationary trends of recent years.

For many in these segments of society, the struggle to afford even the most basic necessities of life has become all-consuming. It’s a precarious situation that has historically led to widespread social unrest and public discontent. Yet, policymakers seem to be turning a blind eye to the gravity of the situation, ignoring the very real risks associated with stubbornly high inflation, particularly in essential commodities like food.

It’s crucial to acknowledge that the people of Pakistan are enduring this unfair plight through no fault of their own. They find themselves trapped in a vicious cycle created by successive governments’ mismanagement of the economy and accumulation of debt.

Now, as the economy demands structural adjustments to stave off default, it’s the ordinary citizens who are being asked to foot the bill. However, there’s a limit to how much they can bear. The burden of economic reform cannot be disproportionately borne by those who can least afford it. The lack of substantive change in policy or approach underscores the systemic failure to address the root causes of the crisis, pushing the nation ever closer to a tipping point of social upheaval.

Pakistan has reassured the International Monetary Fund (IMF) of its commitment to implementing a timely increase in electricity prices, which includes the recovery of pending generation costs amounting to over Rs210 billion. While this move may contribute to the financial sustainability of the power sector, it comes at the expense of the people. This forthcoming increase will mark the third consecutive year of electricity price hikes due to annual adjustments. Over the past two years, the government has raised average prices by Rs7 to Rs8 per unit. These annual adjustments are in addition to the monthly and quarterly price revisions.

Despite these repeated price hikes, the circular debt in the electricity sector remains staggering, standing at around Rs2.7 trillion, with an additional Rs378 billion accumulated during the July-December period of the current fiscal year. While such measures may be necessary for the long-term financial health of the power sector, the burden of these adjustments ultimately falls on the shoulders of the consumers, who are already grappling with the economic challenges posed by inflation and rising living costs.

The repercussions of these impending electricity price increases are likely to be profound and far-reaching. Firstly, the burden will directly impact the consumers, particularly those belonging to lower-income brackets, who already struggle to meet their basic needs amidst the backdrop of rising inflation and economic challenges.

As electricity prices soar, the cost of living will inevitably increase, putting additional strain on household budgets. This could lead to a further deterioration in living standards for many families, exacerbating poverty and inequality across the country. Moreover, businesses, especially small and medium enterprises (SMEs), will face higher operational costs due to increased electricity tariffs. This could stifle economic growth and hinder job creation, potentially leading to layoffs and closures of businesses unable to absorb the additional expenses.

Additionally, the continuous rise in electricity prices could fuel public discontent and unrest. Already burdened by economic hardships, citizens may express their frustration through protests and demonstrations, putting pressure on the government to reconsider its policies. Furthermore, the circular debt in the electricity sector, which continues to balloon despite repeated price hikes, poses a systemic risk to the overall economy. If left unchecked, it could undermine investor confidence, deter foreign investment, and impede efforts to achieve sustainable economic development.

In essence, while the proposed increase in electricity prices may be intended to address the financial challenges faced by the power sector, its repercussions extend beyond mere financial considerations, affecting the livelihoods and well-being of millions of Pakistanis and potentially hindering the country’s socio-economic progress.