Inflation reaches record levels; economy remains volatile
akistan’s consumer price inflation jumped to 31.5 percent in February of 2023, the highest rate since June of 1974. This followed a sharp depreciation of the rupee and the government’s announcement to raise energy prices and taxes to meet the International Monetary Fund’s (IMF’s) conditions for the continuation of its loan programme.
Last year’s floods have added to the economic difficulties for the country. According to Pakistan Bureau of Statistics, prices rose more steeply in February in most sectors than in January. For example, transport (50.5 percent vs 39.1 percent in January), housing and utilities (13.4 percent vs 7.8 percent), food and non-alcoholic beverages (45.1 percent vs 42.9 percent), alcoholic beverages and tobacco (49.2 per cent vs 36.3 per cent), furnishing and household equipment maintenance (34 percent vs 30 percent), recreation and culture (48.1 percent vs 44.1 percent), restaurants and hotels (34.5 percent vs 30.1 percent) and clothing and footwear (17 percent vs 16.8 percent).
The prices of most commodities have risen by the day and there is little hope that the trend will be arrested or reversed soon. In fact, with the holy month of Ramazan round the corner, food inflation could spiral out further. The buying power of most people has decreased drastically and many basic necessities have turned into luxuries for them. Certain decisions by the government, such as removal of subsidies on electricity earlier this year, have also contributed to the inflationary pressure.
The government has taken measures like adopting a market-based exchange rate; a hike in fuel and power tariffs; the withdrawal of subsidies and more taxes to generate revenue to bridge the fiscal deficit. All these measures have led to an increase in inflation.
During the first week of March, the items whose prices increased the most compared to the same week a year ago were onions (311.17 percent), cigarettes (165.86 percent), gas (108.38 percent), diesel (93.82 percent), petrol (77.89 percent), eggs (77.83 percent), rice irri-6/9 (76.96 percent), rice basmati broken (75.55 percent), pulse moong (73.3 percent), bananas (72.66 percent) and chicken (64.7 percent).
The last four years have witnessed an unprecedented rise in inflation that has resulted in prices of essential commodities going up. There has been a drastic increase in the prices of rice, chicken, onions and tomatoes. The price of wheat flour has gone up by as much as 55.9 percent.
There is a strong likelihood that the prices of petroleum will continue to show an upward trend as oil prices in the international market are rising as well as the value of dollar against rupee. As Pakistan imports most of the petroleum products it consumes, the payments have to be made in dollars. Meanwhile, the government is mulling imposition of a bigger petroleum levy on the insistence of IMF. If it does that, the petroleum prices will rise further. So will inflation.
The overall situation is such that the common man is finding it hard to secure two meals a day for the family and is unable to meet other expenses.
The impact of inflation is also obvious on poultry and dairy products. The chicken prices have risen by almost 200 percent over the year. A litre of loose milk or yogurt now costs between Rs 150 and Rs 180.
During the first week of March, the items whose prices rose the most compared to the same week a year ago were onions (311.17 percent), cigarettes (165.86 percent), gas (108.38 percent), diesel (93.82 percent), petrol (77.89 percent), eggs (77.83 percent), rice Irri-6/9 (76.96 percent), rice Basmati broken (75.55 percent), pulse moong (73.3 percent), bananas (72.66 percent) and chicken (64.7 percent).
Coming to medicines, even the most ordinary ones are getting out of the reach of many people. As most of the raw materials for manufacturing medicines are imported, the depreciation of the rupee has made them costlier and led to a corresponding hike in medicine prices. A lack of pro-active price control has further aggravated the situation.
Against this backdrop, economic analysts foresee a further increase in inflation once the government implements the rest of the IMF conditions. These include increasing the general sales tax from 17 per cent to 18 percent.
On the impact of such decisions, economist Asad Sayeed says, “It will be primarily in terms of inflation. There will be some impact on unemployment but that will be limited to the formal sector. Most hard-hitting inflationary impact will be on those who are wage employees. They are roughly one third of the employed labour force, according to the Labour Force Survey. They will be impacted by inflation in food and fuel prices as well as energy prices as wages will not keep up with inflation.”
For the middle and upper middle class segments, Sayeed says, they will also see the real value of their savings/ assets depreciate by at least a third. Those who are self-employed (roughly a third of the workforce) will also suffer but less so as they will be able to pass on at least a part of their costs to consumers of their goods or services, he adds.
Regionally, the worst hit areas will be north and central Punjab and parts of the Peshawar valley in Khyber Pakhtunkhwa (KP) and Karachi as the highest share of wage employees are there and they are the biggest consumers of fuel (through vehicle ownership or public transport) and energy. A large part of the population in Sindh, other than the big cities, most of south Punjab and Balochistan will be least affected because they are already very poor.
Sayeed says these people do not consume much electricity or gas, work largely in the agriculture sector and a smaller proportion of them have wage employment. Food price inflation will hit them but since their nutrition levels are already low, the relative impact on them will be less, he concludes.
Arshad Bajwa, an independent market analyst, foresees rise in food prices in the aftermath of the increase in fuel prices. “As petrol prices reach historic highs, the transportation cost of moving crops from farm to market have increased drastically. Last year’s floods caused a loss of crops and resulted in their shortage which is a factor in the high prices of certain food products.”
“Higher prices will be observed in Ramazan when food commodities will have to be transported between provinces and to urban centres from villages - for example, dates brought to all over the country from Balochistan.”
Bajwa says Pakistan’s economy is pre-dominantly an import-oriented one with petroleum products and edible oil among major imports. Besides, he says, a huge quantity of industrial raw materials is imported. “When you import, you have to pay in dollars which mean the escalation in dollar value is making imports costlier.” One reason for the increase in chicken prices is the drastic increase in price of poultry feed in the international market which Pakistan imports, he adds.
Unfortunately, Bajwa says, Pakistan is importing crops like wheat and cotton which it once used to export. This increases the import bill and results in higher prices due to high dollar value against rupee.
The writer is a staff reporter. He can be reached at email@example.com