The inflation bugbear

The latest, worryingly high inflation numbers have apparently caught the economic wizards flat-footed.  The Pakistan Bureau of Statistics (PBS) reported on Saturday that inflation rate has crept up to 14.6 per cent in January from 12.6pc of the previous month, hitting a 12-year high. The record spike even beats forecasts by the International Monetary Fund, which had estimated that the country’s inflation could rise as high as 13pc. By contrast, the Asian Development Bank in its outlook projected annual inflation in Pakistan at 12pc. On the contrary, the government estimates that it will remain within the range of 11-13pc for the current fiscal year. The PBS data, however, outstrips all estimates. The uptick is arguably driven by higher food prices, notably the wheat flour, which has had a knock-on effect on other items when its price shot up recently.

Inflation, measured by the Consumer Price Index (CPI), edged up 1.97pc over the previous month. Last time, the highest inflation in the country was recorded at 17pc in the year 2007-08. The data shows that higher food prices, particularly of wheat and flour, pulses, sugar, gur and edible oil, have been the largest driver of overall inflation in January.

It has also been observed that the prices of essential food items, especially vegetables and fruits, are higher in rural areas than in urban areas. In rural areas, the prices of LPG cylinders used for cooking purpose have also witnessed highest ever increase since 2013. The pass-through of exchange rate depreciation and higher international commodity prices, in addition to strong underlying demand pressures, started to reflect in higher year-on-year inflation from July 2019. Not unsurprisingly, the opposition has pounced upon this development, grinning from ear to ear. PML-N chief Shehbaz Sharif remarked on Sunday that the ‘tsunami of inflations’ has devastated economy and people of rural areas are suffering more due to rising prices of commodities. He claimed that policy of destroying the agricultural country is being followed by the government. Let us hope the government is not open to tolerating inflation running above target.

 

Published in The Express Tribune, February 3^rd, 2020.

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