FeaturedNationalVOLUME 17 ISSUE # 36

Illusive essentials

Rising prices in the country are seriously hurting the common people. Inflation has hit a 13-year high and industries are shutting down as fuel prices continue to increase. Food, electricity, gas, fuel and cooking oil rates have reached abnormally high. After recent hikes in the gas and power tariff and a fast depleting rupee, inflation will increase in the days to come.

Frequent electricity and fuel price hikes have created the worst inflation in the country. Fuel prices have skyrocketed after the coalition government scrapped subsidies in an attempt to tame a surging fiscal deficit and revive a stalled IMF loan programme. The Pakistani rupee continues to slide down against the dollar, which has further compounded the problem. Inflation is already beyond the patience threshold of the common people, while international institutions have warned that prices would continue to climb in Pakistan in the months and years to come.

The international crediting agency Fitch has predicted that average inflation in Pakistan would remain high at 19pc in the current fiscal year, citing energy price hikes which it said would fuel broad-based inflation. However, it expected that it would come down to 8pc in FY24. The ratings agency forecast slower economic growth this year, predicting it at 3.5pc, compared to the government’s 5pc target. Fiscal and monetary tightening, high imported inflation, and a weaker external demand outlook would all hit household and business confidence, it warned.

The Asian Development Bank (ADB), in a new report, said inflation is marginally revised up for FY22 and substantially so for FY23. “In addition to the effects of elevated global energy and food prices, the government’s efforts to revive the stalled International Monetary Fund (IMF) programme has meant raising power tariffs and withdrawing subsidies in the oil and power sectors,” says the supplement report of Asian Development Outlook.

It pointed out that inflation in Pakistan and Sri Lanka was the highest in the region. In South Asia, it maintained, the headline inflation is in double digits in Pakistan and Sri Lanka, and in most of the Caucasus and Central Asia and Southeast Asia. “In Pakistan, the headline inflation, which was 12.3pc in December 2021, rose to 21.3pc in June. But headline and core inflation in the rest of developing Asia’s large economies remain manageable. So far in the region as a whole, inflation remains moderate on average and much lower than elsewhere in the world,” the report says.

The supplement report also revised the growth forecast for developing Asia from 5.2pc to 4.6pc for 2022 and from 5.3pc to 5.2pc for 2023, reflecting worsened economic prospects because of Russia’s continued invasion of Ukraine, more aggressive monetary tightening in advanced economies, Covid-19 lockdowns in China. The outlook compares with a projection of 5.2pc issued by the ADB in April. The bank also raised its forecast for inflation in the region, amid higher prices for food and fuel.

The ADB report lowered the economic growth of South Asia from 7pc to 6.5pc for 2022 and from 7.4pc to 7.1pc for 2023, mainly due to the economic crisis in Sri Lanka and high inflation and associated monetary tightening in India. The inflation forecast for developing Asia is raised from 3.7pc to 4.2pc for 2022 and from 3.1pc to 3.5pc for 2023 due to higher fuel and food prices. Inflation pressures in the region are, however, less than elsewhere in the world.

In its latest report, the International Monetary Fund (IMF) also raised the global inflation forecast but slashed the economic growth projection due to cooling off economic powerhouses, warning that concerns over recession have mounted. In its World Economic Outlook Update, the IMF said in the baseline scenario, the global economy was projected to grow 3.2pc in 2022, down by 0.4pc. It will further moderate to 2.9pc in 2023, which is 0.7-percentage-point lower than the previous forecast. Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances, and it is anticipated to reach 6.6pc in advanced economies and 9.5pcpc in developing economies this year. The forecast has been upward revised by 0.9pc for this year and 0.8 percentage point for next year. In the United States, the consumer price index rose by 9.1pc in June, compared with a year earlier, and it also rose by 9.1pc in the United Kingdom in May – the highest inflation rates in the two countries in 40 years. In the euro area, inflation in June reached 8.6pc, its highest level since the inception of the monetary union. The IMF said contrary to its earlier predictions, economies of the US and Europe had been impacted more than Russia due to the first major war in Europe since World War-II. “The current outlook is extraordinarily uncertain,” it warned, adding that economic uncertainty and concerns regarding an oncoming recession had increased in recent months and estimates of the probability of recession had also increased. It underlined that the US, Europe, the United Kingdom, China and India were all slowing down. As growth slows down and inflation remains high in its main trading partners – the United States, Europe and China – it will also affect Pakistan.

The inflation rate in Pakistan in the week, which ended on July 21, dropped to -0.22, however, the annual rate is still over 32pc, according to the Pakistan Bureau of Statistics. The data shows that prices of 31 essential items had increased, while the rate of nine items decreased in the week.

It is clear that prices in Pakistan are higher than other countries of the region. According to national and international estimates, inflation will remain high in the current year and the next year. It may come down in 2024. However, the question is whether people can wait for relief for so long?