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Friday May 20, 2022

The elephant in the room

January 25, 2022

On a recent trip to the pharmacist, I witnessed a mother’s frustrated attempt to buy formula milk for her infant.

The experience was uncomfortable for all involved: the mother, who was faced with her inability to afford a basic necessity for her child, even as she tried to make sense of the increase in the price of the formula milk once again; the pharmacist, who tried to assure the lady that the price he quoted was the market price and beyond his control; and me, the witness, who gathered her purchases and left, surreptitiously avoiding the elephant in the room.

The persistent, and, now seemingly, relentless rise in the prices of all commodities has become a cause for all concerned, be it the rich, the poor, or the massive middle class. While a lot has been said and written on the causes and the ‘who-is-to-blame’, the people are left to deal with the reality of inflation with the government making half-hearted attempts at providing some relief.

Social protection programmes such as the Benazir Income Support Programme and the 2022 Ehsaas Emergency Cash (EEC) programme, a second installment of the 2021 EEC programme that provided Rs15,000 to 15 million households last year, are commendable efforts that provide temporary fiscal support to the most deserving households. However, these are essentially fiscal stimulus packages that come at the cost of increased inflationary pressure in an already overheated economy. Essentially, the people are left with the losing end of the stick once more.

As we are so often reminded, Pakistanis are a resilient bunch and inflation is also a challenge in essence. Rising cost of living? We tighten our belts and forgo the little luxuries of life. But for most people, there is just so much room in the belt before it starts to pinch. Then comes a bigger sacrifice: savings. The true cost of resilience. Savings provide people with security, with the possibility of increasing their wealth, with the hope of a better future for their children. Take away savings and people are more vulnerable not only to external shocks but also to the possibility of climbing down the ladder of inequality. Resilience alone is insufficient to deal with a phenomenon that, at its extreme, can relegate generations to a life of economic, and social, uncertainty.

Inflation is expected to continue on its current trajectory well into the current year. The Finance (Supplementary) Bill 2021 aka the ‘mini-budget’ is only going to make matters worse for low-middle income households.

While the government has tried to mitigate the fiscal burden on low-income households by exempting products such as baby food, bakery items, computer laptops, and exempting sale tax on food items such as bread, vermicelli, naan, chapati, sheermal, bun etc being sold at retailers falling below category of Tier-1, it is inevitable that the prices of these exempted items would rise as well. For instance, in the case of the exemption given to sales tax on food items such as bread, naan, chapati etc., the rise in prices of food items at Tier-1 level retailers is going to force people to look for cheaper alternatives. Thus, prices of these food items are likely to rise at lower levels of retailers as well. This phenomenon is also going to impact other commodities currently being exempted from the tax in the mini-budget.

Prudence dictates changing consumption habits and patterns when inflation is on the rise. However, persistent increase in prices leaves consumers with very little options, other than drastically reducing expenditure. When these two phenomena – rising inflation and reduced expenditure – combine, there is a very real risk of the economy going into a recession.

Pakistan is presenting all the signs of an overheated economy and the recent measures taken by the government are not helping matters. Rising levels of inflation are causing the cost of living to rise to intolerable levels. The government has made attempts to ease the burden of inflation on low-middle income households. However, the effectiveness of these measures remains to be seen and people are unlikely to forget the pain caused by inflation when the next election cycle comes around.

The writer is an economic analyst and consultant. She tweets @Tehreem0303

Comments

    Yousaf Khizar commented 4 months ago

    A much needed insight!

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    Very insightful commented 4 months ago

    Very insightful

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