Genie of inflation

With rupee sharply losing its worth against dollar and oil prices persistently on the rise, no wonder the proverbial genie of inflation is fuming out of the bottle. At 5.2 per cent for the month of June, the rate of inflation is at a 44-month high, according to the Pakistan Bureau of Statistics. Products ranging from basic necessities to luxurious items have started to become expensive. A 1% devaluation in currency, according to experts, leads to a 0.3% rise in the rate of inflation; and it’s no secret either that the increase in oil prices pushes up transportation charges which impacts the prices of basic food commodities, in particular. So this double blow to economy is increasingly making life miserable for the common man in Pakistan who have meagre income and has no savings at all. For him and her, buying all basic necessities, goods, food items and essential services for his family is all but a distant dream.

In order to hold back inflation and correct other macroeconomic imbalances, the State Bank of Pakistan, in the month of May, increased the key policy rate by 50 basis points to 6.5%. In its monetary policy statement, the central bank has acknowledged the building up of inflationary pressures as core inflation had started going up suddenly. Forecasting inflationary trends, the bank’s policy statement says a significant change in the outlook for international crude oil prices, strong demand, lagged pass-through of exchange rate adjustments, food inflation maintaining its current course and inflationary expectations would largely determine the inflation path for fiscal year 2018-19.

Inflation affects the whole social framework of a society — featuring the economy, production and political environment. Focusing on the two major trigger points — ie, currency devaluation and petroleum prices — both long- and short-term measures are needed to control the situation from worsening further.

Published in The Express Tribune, July 6^th, 2018.

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