Friday September 29, 2023

Surviving inflation

By Editorial Board
February 02, 2023

Inflation numbers for January 2023 are in and they are not pretty. Pakistan experienced 27.6 per cent year-on-year inflation in January, up 2.9 per cent month-on-month from December 2022 and the highest in 48 years. In other words, the level of economic hardship has soared past anything seen by the majority of Pakistanis (all those born after 1975). The nearest Pakistan saw inflation numbers in this vicinity was in 1975, when it touched 27.77. Of course, today’s raging inflation was expected: From the rupee free float to the hikes in pump prices, the measures the government has taken to stay on-budget (and therefore on the right side of the IMF concerning the EFF programme) are inflationary. It is also well known that we are headed into more inflationary measures. Hikes in gas and electricity tariffs are due any time now, followed by another pump price review on February 15. The mini-budget the government is now contemplating can scarcely not be inflationary. All of which is to say that inflation is headed upwards in the next few months. Ultimately, Pakistan has to turn the tide of inflation before the task of putting the economy on a growth trajectory can begin. Especially given that January’s inflation number came in higher than market expectations, chiefly ranging between 25.9 per cent and 27.0 per cent, the central bank will have a strong urge to hike the policy rate by something between 150 and 200 basis points in the next iteration of its policy due in March in an effort to at least try to tame inflation.

On the other hand, the common Pakistani has already had it. Rising pump prices have gouged holes in the pockets of those who own cars or motorbikes. But those who ride neither are the worst hit of all, as the rise in public transport fares is always steeper. Transport inflation aptly clocked in at 31.1 per cent y-o-y and this is just one of the many items on the daily list of necessaries of life people have to contend with. A tsunami of shutdowns has decimated small business establishments starting with the import sector. It is now cascading through the SME sector, reaching all the way into large-scale manufacturing. The ugliest part is that food inflation, clocking 42.9 per cent in January, is leading the trend of high inflation in a country that has an agrarian economy. Food accounts for 34.6 of the 100 percentage points of the CPI basket. The inflation raging around us has a particularly sharp edge for the poorest among us who spend the largest part of their disposable income on food. And the outrage is that while some of today’s food inflation may be rooted in last year’s cataclysmic monsoon flooding, there is no doubt that a lot of it comes from business malpractice enabled by weak administration. Take for instance the wheat and flour crisis that shook the country recently. Clearly, it was created through artificial shortage although no supply bottleneck was in evidence. Prices pushed up by that crisis are yet to return to their normal levels.

The game of political musical chairs that has been on since April 2022 has wreaked untold havoc on the writ of the government. Mafias have taken full advantage of the multiple vacuums of authority and grey areas exposed by this state of affairs. This has to end. Prime Minister Shehbaz Sharif and his coalition have to realize that the common citizen depends on the government’s word. That includes people apart from their hardcore political following, who may even believe their rosier promises. PDM leaders have frequently talked about the inevitability of economic hardship as their government pulls the country back from the brink of a default. It is amazing how the common Pakistani is prepared to take it on the chin, but there is a limit to which flesh and blood can bear. The current round of economic hardship that was well underway when the Covid-19 pandemic arrived, has already gone on for too long. Millions of Pakistanis have seen their quality of life nosedive and millions more have dropped below the poverty line in the last few years. The situation is particularly bad for the less fortunate among us. How do you push people struggling for bread and butter to sacrifice even more for the nation? You cannot and you do not.

PM Sharif and his PDM colleagues must realize that now is their time to come good on their promise of not encumbering the vulnerable among us any further. Their action to that end has to be bi-pronged. One, think outside the box to make the upcoming mini-budget as non-inflationary as possible; and two, throw safety nets across the nation to shield the vulnerable. This is no small task, but then the situation is hardly normal. The solutions today’s Pakistan needs call for extraordinary leadership, and nobody is more qualified to provide it than a government backed by the nation’s veritable political consensus.