The government’s monthly review on price indices is in, and it confirms what has been well known for a while: Already at historic levels, inflation continues to surge, showing no signs of tapering off any time soon. General CPI inflation rose to 35.4 per cent year-on-year in March, and while urban CPI inflation hovered around 33 per cent, rural CPI inflation was raging at 38.9 per cent. The SPI basket prices clocked in at 40.9 per cent for the month. Given that the bulk of the data that went into the analysis corresponds to pre-Ramazan days, it is likely that the numbers do not adequately reflect the severity of the crisis as felt by people in the final week of March, overlapping with the first week of Ramazan. If we look at the state of our economy, it is obvious that import compression has well nigh put paid to imported inflation. This clearly means that today’s high inflation levels are fuelled by the continued slide of the rupee and unprecedented high food inflation. As would be expected, households depending on wage earners, and salaried individuals – whose real earnings have been on the decline for the last several years despite (any) nominal raises because of the rupee depreciation – are the hardest hit by economic hardship. In other words, the cost-of-living crisis gripping the lower income strata of society has assumed the proportions of a full-blown disaster, unmitigated by the precious little the government has been able to do to address it.
The disaster is playing out against the backdrop of our government making haste slowly to clinch a staff-level-agreement (SLA) for the resumption of a stalled International Monetary Fund bailout. The jury is still out on the wisdom of implementing the reform measures agreed with the Fund piecemeal, dragging feet every step of the way but eventually conceding every single point albeit after wasting as much time as possible. It is unclear what the government aims to achieve through this strategy except the further slide of the rupee, which in turn fuels inflation. The central bank on its part has appeared as helpless as the people, always behind the curve of inflation, always doing too little too late to arrest the trend. This time around, too, the State Bank of Pakistan is expected to hike its policy rate by some 400-500 basis points in its meeting due next week.
It does not help that the reform measures enacted to satisfy the Fund have all been inflationary. But each one of them is made even more inflationary by the slow pace of implementation. Sealing a deal at an early stage would have at least stabilized the rupee, pacified the markets, and turned the sentiment positive. What's more, the energies liberated by such a development could have gone into stimulating the domestic sector of the economy. But the government is apparently moved by some other considerations not discernible by the commoners. Never in the history of the country has a political government been so aloof to the plight of the people. Prime Minister Shehbaz Sharif is gravely mistaken if he thinks that shallow or cosmetic initiatives like the free wheat flour and fuel card will stand him in good stead in the event of an election. If anything, the disaster-prone free atta scheme may further erode his coalition’s dwindling political capital. All in all, the government doesn’t seem to realize that it is running out of time to avert a cost of living disaster that has latent potential to spark violent upheaval. Here's hoping Finance Minister Ishaq Dar and the State Bank wake up to this reality sooner rather than later, and get ahead of the curve of inflation to achieve economic stabilization before it is too late.