level,” he added.
The power rates have not been adjusted according to decline in fuel prices and the gas rates have been increased. These two factors have helped to maintain the inflation at current level. “Had the power tariff been reduced, we might have gone into actual deflation by now,” Qamar added.
“The dilemma for the planners is that they cannot control the external factors,” he said, “If they take some inflationary measures now and the commodity rates rebound in a year, we may immediately face hyper inflation.”
However, he agreed that the current situation is suitable to push the economy by lowering interest rates on long term bank loans specifically for up-gradation of technology.
“The current interest rates are not attractive for the businessmen who have retired under more loan in the last quarter than they borrowed,” he said, “The right kind of deflation involves lower prices through increased productivity and better technology.”
Financial analyst Muhammad Mubashar Bashir said the current challenge that looms large is not inflation but possible deflation. “We are closer to deflation territory and far away from inflation territory,” he asserted.
For the time being it would be better to focus more on controlling the deflationary pressure instead of worrying about high inflation. “The Pakistani economy needs a push, as it is not growing anywhere close to its full potential,” he added.
Bashir said without accelerating manufacturing activities, the country would not be able to address the problem of rising inflation.”
Currently, the industries are creating fewer jobs than the number of workers joining the workforce annually.
He said consistent increase in wages has also decreased the absorption capacity of industries as they cannot afford to pay higher wages for the same level of production. To overcome this wage debacle, industries are opting innovative technologies to compensate higher wages.
However, they need a lucrative financial package to upgrade their industries.
Bashir warned that if the government continued to remain aloof, “we may witness prolonged periods of deflation that would lead to further decrease in economic growth.”