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July 3, 2020

Masses bear the brunt of poor governance

Business

July 3, 2020

LAHORE: Inflation should be the greatest worry of this government, as declining growth certainly means reduced incomes and high job losses while the incremental impact of even moderate inflation on last year’s high base would be unbearable for consumers.

Economies the world over are shrinking with reducing consumer demand. This has resulted in lower inflation in most of the countries.

Inflation last year was also largely subdued in most of the economies. In Pakistan inflation last fiscal was in double digit despite slowdown in the economy.

The government expects inflation to range between 6-7 percent this fiscal while the economy is expected to post a negative growth. Incomes generally have declined and those earning at 2017-18 level are very few and extremely lucky.

Job decline that started last year has accelerated as a result of ongoing pandemic. It will take at least a year for the economy to start moving ahead.

Under these circumstances, households would have to manage their budgets at lower incomes. The prices of all essential items in the last 18 months have reached historic high.

Consumers are buying wheat flour, sugar, and edible oil at all-time high rates. The unstable rupee is also not helping their cause.

Two years back the poor used to consume 70 percent of their income on food. After last year’s high inflation and reduction in their incomes, the poor are unable to get two square meals a day even on 100 percent of their income.

In fact, now the lower middle class is spending 70 percent of their income on food. This leaves them with no consumable surplus after accounting for house rent and utility charges.

Officially we still say that the impact of food consumption on consumer price index is 35 percent. This needs to be revisited and its weight in CPI has to be increased for better planning.

Under the current scenario, controlling inflation should be the top priority of the state. It is unfortunate that most of food and other inflation remain high due to absence of government writ.

We have sufficient sugar stocks and its cost of production is very low, but the prices are extremely high.

The federal information minister admitted to cartelisation in the sugar sector, as all mills quote exactly the same price in government tenders.

Who is responsible to break this cartel and many other cartels or mafias operating in the country? Would it be the government or public vigilantes?

Inflation in June 2020 registered increase of 0.4 percent to 8.6 percent. This does not include the impact of massive increase in prices of petroleum products that would be reflected in the month of July.

Dollar is still trading stubbornly at a high rate against rupee, despite huge influx of foreign inflows.

We all know that inflation is the average increase in the rates of large number of items listed in consumer price index.

A CPI of 10 percent means an average increase in prices of all items by 10 percent. The increase could be 20 percent for some items included in the CPI basket and 5 percent for some other item or no increase at all or decline in the rates of some.

Inflation in recently concluded fiscal year was 10.5 percent.

That means the average prices increased from Rs100 in fiscal year 2018-19 to Rs110.5 in the fiscal year 2019-20.

We must now bear in mind that this inflation hit the consumers when their incomes were either declining or stagnant. For those who faced cut in incomes the impact of inflation was much higher.

For those who lost their job, the impact was devastating. Last fiscal we posted negative growth.

Chances for growth in current fiscal are very dim. In fact some international agencies are predicting another year of negative growth.

Under these circumstances even low inflation would hit the consumers severely. The government has predicted 6-7 percent inflation this fiscal although the way things are moving it could be higher.

Just look at the impact of 7 percent inflation on a household that is managing its budget at 2017-18 income. Last year it tolerated a hit of 10 percent inflation taking the average prices from Rs100 to Rs110.50.

This fiscal the same household would see the average rates increase by 7 percent. That means the product that cost Rs100 in 2018-19 and Rs110.50 in 2019-20 would now cost Rs118 this fiscal.

Would it be bearable for those experiencing decline in their incomes? What would the jobless do, as their numbers are increasing constantly?