Sunday October 02, 2022

Soaring inflation

September 23, 2022

LAHORE: Inflation of five percent in developing economies impacts all segments of society be it poor or rich. Its impact up to 10 percent is well tolerated by the rich, but beyond 20 percent it starts taxing production.

We are facing an inflation of around 40 percent. It has brought miseries for the masses as prices of all items have gone beyond their reach.

They are coping with the situation by curtailing consumption as much as possible. But the austerity in spending has a limit.

They can reduce or eliminate consumption lunches and dinners in hotels or use their cars and motorcycles to bare minimum. They can forgo recreation and parties. They can cut power use to the barest minimum, up to the level they can afford.

By adopting severe austerity they compromise on the quality of life.

But there are some expenses that cannot be curtailed. Food is one such expense. Even in food one may reduce the quantity of nutritious foods like meat, beef or fish.

The use of milk can be restricted for growing children (if they can afford to buy in the first place).

They may opt for the cheapest vegetable available in the market. They can restrict tea consumption to one cup a day. But to fill their stomachs they must take a sufficient quantity of wheat flour or rice (both of which are highly expensive).

The lower strata of society cannot even afford the staple foods that lack proper nutrition.

Health has become a major issue for the poor or those living at the edge of poverty.

Almost every family has patients that must take medicines to survive. Medicines are either unavailable or the cost has gone too high. Most patients skip drugs to spare resources for food.

For the businesses things are not as rosy as they look. They only enjoy the advantage of marketing their products by passing on the increases in cost to the consumers.

But their sales have dwindled. Packaged milk sales are down. Beverage companies are fighting to survive as consumption slumps.

Retailers and wholesalers of home appliances wait for customers the whole day without striking a sale.

Car production is down; motorcycle manufacturers have huge unsold stocks; cement production is down by over 20 percent.

Construction activities have halted. There is a lull in the market. Businessmen might not be selling their goods at a loss, but their overall profit has slumped due to low sales and lower margins (margins are lower because too many goods and few customers has brought competition in the market).

The stock market depicts the uncertainty in the air.

The central bank has no clue how to control the downside of rupee.

Regular devaluation of currency has resulted in corresponding increase in the rates of both imported and locally manufactured goods (that use imported inputs). Despite all this pressure on businesses, inequality is on rise.

It is because businesses are at least operating on some profit, but the public at large has seen whatever resources they possessed vanishing. Most of them are in debt.

As all this is happening, we see no role of the government in stopping this rot. It seems government functionaries have let things drift to a stage that has accelerated the chances of a hard landing for the economy.