FeaturedNationalVOLUME 17 ISSUE # 29

Excruciating inflation

The income of the common people has been slashed by at least 20pc after recent hikes in petrol, diesel, electricity and gas prices. Inflation was expected to increase in the tenure of the new government but people were not hoping that all “bombs” will be dropped on them at once. They cursed the PTI government for its failure to check prices but the new government has taken such harsh measures in a short time that they badly miss the last setup.

Undoubtedly, price hikes of petrol, diesel, electricity and gas were expected after the past government had signed an agreement with the International Monetary Fund (IMF). However, the Imran Khan government had capped their prices in its last months after it felt that it would be voted out through a no-confidence motion. On the other hand, people were expecting that the new government would find a way out to save them from inflation by taking some out-of-the-box measures or at least increasing prices in phases. They did not expect that the government would overburden them massively in a week or two. According to some analysts backing the government, people will get used to high prices in a few months. It is a wrong perception. People never become used to high inflation as it hurts them daily. The government will have to increase their incomes if it wants to lessen the burden on them.

Weeks after coming to power, the government has hiked ghee and cooking oil rates by an unprecedented Rs208 and Rs213 to an all-time high of Rs555 per kg and Rs605 per litre, respectively, even though the rates still do not exist in the retail markets. The wheat and flour crisis has also deepened in Sindh as millers have jacked up prices of all flour varieties citing suspension in arrival of wheat from the province’s growing areas to Karachi.

The government has hiked the prices of petroleum products by another Rs30/litre after making a similar increase a week ago. Petrol is now selling at Rs209.86, diesel at Rs204.15, kerosene oil at Rs181.94 and light diesel at Rs178.31. Some experts fear fuel prices will reach over Rs265 in a few weeks.

To add to the woes of the common people, the National Electric Power Regulatory Authority has approved a massive hike of Rs7.91 per unit in the electricity tariff. With the new hike, the one-unit price of electricity has gone up from Rs16.91 to Rs24.82. The depreciation of the rupee and rising oil prices in the international market have been cited as reasons for the tariff hike. A day earlier, the International Monetary Fund (IMF) had said, “Pakistan needs to take wide-ranging steps to repair macroeconomic stability”, indicating that the revival of the programme would not be a cakewalk despite the government’s decision to increase fuel prices by 25pc. The Oil and Gas Regulatory Authority also determined a 45pc hike in the prescribed prices of natural gas for the 2022-23 fiscal year to meet revenue requirements of the two gas utilities — SNGPL and SSGCL.

The recent measures are expected to push up prices beyond the bearable level. The Sensitive Price Indicator (SPI)-based weekly inflation for the week ended on June 2 for the combined consumption group witnessed an increase of 2pc as compared to the previous week. According to the Pakistan Bureau of Statistics (PBS), the SPI for the combined consumption group in the week under review witnessed an increase of 20.04pc. During the week, out of 51 items, prices of 28 (54.90%) items increased, 5 (9.81%) items decreased and 18 (35.29pc) items remained stable.

According to the State Bank of Pakistan, external pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors. Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate. Globally, inflation has intensified due to the Russia-Ukraine conflict and renewed supply disruptions caused by the new Covid wave in China. As a result, almost all central banks across the world are suddenly confronting multi-year high inflation and a challenging outlook, it noted in a recent report. It observed that headline inflation rose from 12.7pc (y/y) in March to 13.4pc in April, driven by perishable food items and core inflation. The rise in core inflation reflects strong domestic demand and second-round effects of supply shocks, it said.

Moody’s Investor Service has also downgraded Pakistan’s outlook from stable to negative, citing “heightened external vulnerability” and uncertainty around securing external financing to meet the country’s needs. “The decision to change the outlook to negative is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs. Moody’s assesses that Pakistan’s external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and — already thin — foreign exchange reserves, especially in the context of heightened political and social risk,” it said in its latest report.

The business community fears the recent steps will not only push up the cost of production but also jolt the cost of doing business and ease of doing business indices. Experts also fear that inflation will reach 30pc in a few weeks and many people would lose their jobs in the coming months after the industry is facing serious challenges.