Inflation has been a persistent challenge for Pakistan’s economy and people in recent years. Prices of goods and services have increased, which have decreased the purchasing power of a large majority of the population.
The inflation rate has been on an upward trend since 2018. However, it has broken all records in recent weeks and months. Prices are not only the highest in the country’s history but also among all regional countries, except Sri Lanka and even Afghanistan performed better than Pakistan on this vital front.
Pakistan’s monthly inflation, as measured by the Consumer Price Index (CPI), reached an all-time high of 35.37pc year-on-year (YoY) in March, according to the Pakistan Bureau of Statistics (PBS). According to the data, prices in urban and rural areas increased by 32.97pc and 38.88pc year-on-year, respectively. There was a huge increase in the food inflation rate, mostly because of the disruption of supply chains and weak checks. Food inflation rose steeply to 50.2pc in rural areas and it also significantly increased to 47.1pc in cities last month, the PBS data showed. On the other hand, short-term inflation, based on the Sensitive Price Index (SPI), rose to 45.36pc on an annual basis during the seven-day period which ended on March 30. Out of 51 items in the SPI basket, prices of 23 items increased while those of 11 items decreased; however, rates of 17 items remained unchanged.
On the other hand, the CPI inflation rate has been above the Reserve Bank of India (RBI)’s medium-term target of 6pc for nine months. The CPI rate in November 2022 was 5.88pc and 5.72pc in December 2022. The RBI governor expects inflation to remain above 4pc. It is expected to average 5.6pc in Q4 of 2023-24, which is far lower than that of Pakistan.
Bangladesh’s annual inflation rate increased to 8.78pc in February of 2023 from 5.57pc in the previous month. It was the highest inflation rate in three months, driven by higher prices of food items (8.13pc vs. 7.76pc in January). Meanwhile, prices slowed slightly for non-food items (9.82pc vs. 9.84pc). Consumer prices increased by 0.58pc over the previous month, following a 0.60pc increase in the prior month, according to the Bangladesh Bureau of Statistics.
The annual inflation rate in Sri Lanka eased for the sixth straight month to 50.3pc in March of 2023, the lowest since May 2022, from 50.6pc in the previous month. Prices slowed for food (47.6pc vs. 54.4pc in February) and rose slightly for non-food items (51.7pc vs. 48.8pc).
The annual inflation rate in Afghanistan eased to 3.6pc in January 2023 from 5.2 percent in the previous month. It was the lowest reading since June 2021, as prices slowed further for food items (3.2pc vs 5.2pc in December) and non-food items (4pc vs 5.3pc). On a monthly basis, the CPI went down by 0.2pc, following a 0.1 percent fall in January, according to the National Statistics and Information Authority (NSIA)
The inflation rate in Pakistan in 2021 was recorded at around 8.9pc, which was significantly higher than the State Bank of Pakistan’s target rate of 5-7pc. There are several factors that contribute to inflation in Pakistan, including rising oil prices, increasing food prices, and devaluation of the Pakistani rupee. Additionally, government policies such as subsidies, taxes, and trade policies can also impact inflation.
The devaluation of the Pakistani rupee has had significant implications for the Pakistani economy, including contributing to inflation, increasing the cost of imports, and increasing the burden of external debt. The Pakistani government has taken various measures to address this, including implementing currency swap agreements with other countries and seeking financial assistance from international organizations such as the International Monetary Fund (IMF).
There are many national and international reasons behind the phenomenon. There has been a significant hike in international commodity prices in recent months, which has affected economies around the world. Commodity prices refer to the prices of primary goods such as oil, metals, and agricultural products that are traded on international markets. The reasons for the recent hike in commodity prices are multifaceted and include a combination of supply and demand factors. One of the main drivers of the increase in commodity prices has been the global economic recovery from the COVID-19 pandemic, which has led to an increase in demand for raw materials as businesses and consumers increase their spending.
Other factors contributing to the hike in commodity prices include supply chain disruptions, weather-related events that have affected agricultural production, and geopolitical tensions that have affected oil production and distribution. The hike in commodity prices has had significant implications for global economies, particularly for developing countries that are heavily dependent on commodity exports. These countries may experience a decline in their terms of trade, as the prices of their exports may not be rising as quickly as the prices of the commodities they need to import. This can result in a decrease in their foreign exchange earnings, which can have negative effects on their economic growth and development.
The ongoing war in Ukraine has badly impacted commodity prices, particularly for agricultural commodities. Ukraine is a major producer and exporter of grains such as wheat, corn, and barley, and any disruptions to its agricultural production can affect global commodity markets. The conflict in Ukraine has led to disruptions in agricultural production and transportation, as farmers have faced difficulties accessing markets and transporting their goods. Additionally, the conflict has led to uncertainty and instability, which can have a negative impact on investment and trade.
One of the main ways that the conflict in Ukraine has affected commodity prices is through the impact on wheat prices. Ukraine is one of the largest exporters of wheat in the world, and any disruptions to its production or exports can affect global wheat prices. For example, in 2014, when the conflict in Ukraine began, wheat prices increased by around 20pc due to concerns about supply disruptions.
Pakistan has experienced devastating floods in recent years, which badly affected the country’s agricultural sector. As a result, food prices have increased sharply. The floods also had a significant impact on livestock, with many animals being swept away or drowned in the floodwaters. This has led to a decrease in the availability of meat and dairy products in the affected areas.
According to the finance ministry, prices will remain high in the near future. It means the common people will continue to suffer with no prospect of any relief soon. The government should take measures to address domestic causes of inflation at least besides increasing the income of the common people.