FeaturedNationalVOLUME 17 ISSUE # 5

Prices strike new peaks

Food prices have gone through the roof. The dollar has risen to an all-time high against the Pakistani rupee. Fuel prices increase every fortnight and rising international rates of crude oil mean no relief is possible for the common people in the near future.

The government of Prime Minister Imran Khan claims that inflation has been its prime focus in policymaking and he recently announced a Rs1.4 trillion project to help poor families. His government has also set up food banks. However, the common people need jobs and better incomes to run their households instead of handouts. Rising prices of food and daily-use items is the biggest issue which has only compounded. Inflation shot up to 9pc in September after a significant increase in prices of food, electricity and fuel items. Consumer Price Index (CPI)-based inflation rose to 9pc for the third successive month compared to a year ago, which is the highest rate in three months.

According to the Pakistan Bureau of Statistics (PBS), the month-on-month inflation rate spiked to 2.1pc in September over August, the highest in 15 months. Inflation accelerated to 9.1pc in urban areas and to 8.8pc in villages. Food inflation spiralled in cities to 10.8pc and in villages and towns it remained at the previous level of 9.1pc. The country faced a 45pc hike in prices of chicken, 40pc rise in prices of cooking oil, 33pc increase in egg rates and nearly 20pc increase in the prices of wheat flour in September over the corresponding month a year ago. On a month-on-month basis, flour rose by 10pc despite Finance Minister Shaukat Tarin’s promise to bring its price down to Rs55 per kg. Sugar also increased by 15pc.

Non-food inflation increased to 8.1pc in urban areas and 8.5pc in rural areas in September. Core inflation, calculated by excluding food and energy items, inched up to 6.4pc in urban areas. The food group saw an almost double-digit hike in prices in September compared to the same month a year ago. Within the food group, the prices of non-perishable food items rose 11.1pc on an annualised basis and perishable goods increased by 15.3pc. Inflation for the housing, water, electricity, gas and fuel group increased to 8.9pc last month.

On the other hand, the International Monetary Fund (IMF) has forecast an inadequate growth rate of 4pc for Pakistan coupled with elevated rates of inflation and unemployment during the current fiscal year. Its World Economic Outlook (WEO) projected the average rate of inflation at 8.5pc, current account deficit at 3.1pc of GDP and unemployment rate at 4.8pc during the current fiscal year. Though it projected the economic growth rate recovering slowly to 5pc of GDP by FY2026, which it had estimated in April this year, it said the rate of inflation would slide to 8.5pc this year against 8.9pc last fiscal year but would rise again to 9.2pc by the end of next year. It expected the Consumer Price Index to slowly come down to 6.5pc by FY2026.

Earlier, the World Bank projected inflation to edge up in FY22 with expected domestic energy tariff hikes and higher oil and commodity prices before moderating in FY23. “Poverty is expected to continue declining, reaching 4pc by FY23. The current account deficit is projected to widen to 2.5pc of GDP in FY23 as imports expand with higher economic growth and oil prices. In Pakistan, growth is expected to ease a little to 3.4pc in fiscal year 2021-22, as fiscal and monetary measures are expected to unwind,” the World Bank said in its twice-yearly report “South Asia Economic Focus Shifting Gears: Digitisation and Services-Led Development.”

The Asian Development Bank (ADB) also projected that inflation in Pakistan would remain the highest in the region at 7.5pc. The Asian Development Outlook Update (ADOU) forecast inflation to slow to 7.5pcin fiscal year 2021-22, unchanged from the forecast in 2021. However, it is the highest rate of inflation in the South Asian region, followed by 6.2pc in Bhutan, 5.8pc in Bangladesh, 5.2pc in Nepal and 4.8pc in India. The ADB also cautioned about further increase in prices in Pakistan, provided the Pakistan-IMF deal collapses. “Risk of inflation higher than forecast derives from any unusual increase in oil prices or from potential currency depreciation in the wake of any early winding down of the ongoing IMF programme,” the ADB added.

According to the finance ministry of Pakistan, the inflationary pressure has been mainly derived from global market commodity prices. In its latest report, the ministry said the government had taken various policy initiatives, administrative actions and announced relief packages to control inflation. “Higher international food prices were transmitted to countries, which are net importers of food. But due to prudent and pro-poor measures taken by the government, proportionate rise of the commodities i.e sugar, palm oil, soybean oil, wheat and crude oil was not passed on to domestic consumers,” it explained.

However, the IMF has noted that consumer prices have risen substantially over the last couple of months on the back of supply chain disruptions and higher commodity prices, notably gas. In the US, consumer prices rose 5.4pc in July from a year earlier — matching the largest jump since August 2008 — before easing slightly in August. Meanwhile, in the eurozone, inflation reached a 13-year high in September. “This rising inflation has ramped up the pressure on central banks to ease off their monetary stimulus programmes quicker than anticipated. Inflation risks are skewed to the upside and could materialize if pandemic-induced supply-demand mismatches continue longer than expected. 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 warned.

There is no doubt that prices have increased all over the world. However, people of Pakistan are not willing to accept it. They have suffered badly in the PTI government’s three years. They need immediate respite from high prices. Prices of wheat flour, sugar and cooking oil are hurting them most. The government should reduce their prices at any cost, if it cannot control the rates of all food items and daily-use items.