Fall in inflation

In a welcome sign for the masses as well as policymakers, inflation has come down to 12.4% in February 2020 as against 14.6% in the previous month, according to the Federal Bureau of Statistics. Measured by the Consumer Price Index, inflation had been on a continuous rise since June 2019 when it was recorded at 8.9%. It soared into the double digit the following month to 10.3%. It kept rising and rising reaching a nine-year high of 14.6% in January 2020, panicking the policymakers. However, in the last one month alone, there has been a fall of 2.2% in the inflation figure, due to steps like the provision of subsidy on kitchen items and other products through utility stores, and improving the supply mechanism.

The fall in inflation must have come as a huge breather for the government of PM Imran Khan that has been heavily criticised for its economic policies focused on tackling the current account deficit by cutting down on imports, and choking the economic activity in the process. Other measures like a cap on government spending added to the economic slowdown bringing the growth rate down to poor levels. To encourage savings and reduce inflationary pressure, the central bank raised the interest rate progressively to 13.25% from 5.75% in May 2018 when the PML-N relinquished control of the government.

Under pressure to provide relief to the common man as well as the business community, the government wants the interest rate and utilities’ charges to come down. Since the central bank determines the policy rate on the basis of the core inflation rate, the February 2020 figure for inflation must have leveraged the hands of the government ahead of a key meeting of the Monetary and Fiscal Policies Coordination Board. Coming up next week, the meeting will be chaired by the de facto finance minister and will have the SBP governor in attendance. Let’s see if the government is able to disrupt the status quo on the monetary policy.