Inflation rate hit the roof in rural areas where it was recorded at 38.9%, while it jumped to 33% in the cities
ISLAMABAD: Amid uncertain political and economic situation, inflationary pressure on the economy has almost tripled in the last year and reached a historic high in March 2023. This skyrocketing politically-sensitive inflation has hit the most vulnerable, especially millions of low- and fixed-income households, and pushing them below the poverty line.
The government has also wrung an alarming bell that price-hike will remain elevated in coming months due to the second-round effects of its earlier decisions taken for securing a $1.1 billion tranche from the IMF to stave off default.
For months, the government is in talks with the IMF to secure the tranche that was due in November 2022—a part of the $6.5 billion bailout agreed upon in 2019— but it is still in the doldrums.
The headline CPI inflation in March 2023 clocked in at a record level of 35.4 percent on a year-on-year basis against an increase of 31.5 percent in February and 12.7 percent in March 2022, the Pakistan Bureau of Statistics (PBS) on Saturday reported. In one month, CPI jumped up 3.7 percent over the previous month.
Food inflation, which occupies 34.58 weigh-
tage in the CPI basket, jumped to 47.15 percent in March against 45 percent in February, with the biggest increase in the prices of onion by 258 percent, cigarettes by 171 percent, tea by 105 percent, wheat by 94 percent, eggs by 84 percent, rice 82 percent, wheat flour 70 percent, gram whole 65 percent, moong pulse 58 percent, besan 56 percent, gram pulse, cooking oil and mash pulse each price increased by 54 percent over the same month of last year.
Besides, fresh fruit prices increased 51 percent, dry fruits 48 percent, beans 44 percent, chicken 42 percent, vegetable ghee 41 percent, potatoes 41 percent, mustard oil 38 percent, beverages 37 percent, fresh milk 36 percent, masoor pulse 27 percent, fish 22 percent, meat 21 percent, sugar 19 percent and fresh vegetables by 19 percent.
Similarly, transportation charges were 54.94 percent costlier, recreation and culture cost 50.6 percent, alcoholic beverages, and tobacco 140 percent, and restaurants and hotelling 38.5 percent.
Furnishing and household equipment maintenance charges also went up 39 percent, clothing and footwear costs increased by 21.9 percent, health charges by 18.46 percent, housing, water, electricity, gas, and fuel by 17.5 percent and education charges were higher by 7.2 percent.
It is worth noting that since April 2022 (13.4pc), the CPI inflation has started jumping. In the following months, it leaped to higher levels due to food and utility charges. In May 2022, CPI was at 13.8 percent, June 21.3 percent, July at 24.9 percent, August at 27.3 percent, September at 23.2 percent, October at 26.6 percent, November at 23.8 percent and December was at 24.47 percent. In January 2023, CPI was 27.6 percent, in February it jumped to 31.5 percent and now in March, it leaped to 35.4 percent.
If the galloping inflation was not reined in, this fiscal would be the year of historic high inflation. It would have adverse effects on the economy, such as reducing consumer and investor confidence, increasing the cost of borrowing and hindering economic growth.
The government has also forecast a further increase in inflation in the coming months. The Finance Ministry the other day in its Monthly Economic Update & Outlook said: “Inflation may further jack up as a result of a second-round effect.”
These second-round effects the government is expecting due to its earlier policy decisions, including ending subsidies by increasing fuel and electricity prices, rupee devaluation, limiting imports, State Bank’s policy rate hike and tax measures like raising GST by a percentage point to 18 percent.
During the month under review, food, beverages, transportation and recreation and cultural expenses increased over 50 percent year-on-year which pushed up the inflation rate.
The nine-month July-March 2022/23 average inflation arrived at 27.26 percent against only 10.77 percent in the same period of FY22.
Apart from common Pakistanis, businesses and industries are also facing the brunt, due to higher bank financing due to State Bank’s high discount rate which is currently at 20 percent. Core inflation (excluding the food and energy components) also peaked in the month under review since 2010, reaching 18.6 percent in March, raising the possibility of another hike in the discount rate by the State Bank whose monetary policy board is meeting on April 4. Inflation is also a type of invisible tax on cash holders, eroding the purchasing power of money.
The inflation bulletin also pinpoints that inflation was considerably higher in rural Pakistan than in urban centers.
Urban inflation increased by 33 percent yearly in March 2023 as compared to 28.8 percent in February 2023 and 11.9 percent in March 2022. On a month-on-month basis, it increased to 3.9 percent in March 2023 as compared to an increase of 4.5 percent in the previous month and an increase of 0.7 percent in March 2022.
Rural CPI increased 38.9 percent on a year-on-year basis in March 2023 as compared to an increase of 35.6 percent in the previous month and 13.9 percent in March 2022.
On a month-on-month basis, it increased to 3.5 percent in March 2023 as compared to an increase of 4.0 percent in the previous month and an increase of 1.0 percent in March 2022.
Another indicator of inflation, the Wholesale Price Index (WPI) or producer price also increased by 37.5 percent in March 2023 against 36.4 percent in February 2023, and 23.8 in March 2022.
On a MoM basis, it increased by 4.7 percent in the month under review as compared to an increase of 8.2 percent a month earlier and an increase of 3.9 percent in March 2022. This high jump indicates a further increase in CPI in the coming months.
The weekly sensitive price indicator (SPI) also increased 40.4 percent in the month under review as compared to an increase of 33.6 percent last month and 13 percent in March 2022.