A snapshot of inflation in Pakistan
Although the trend is not more than a fluctuation in overall movement, policymakers are keen to see it as a manifestation and indication of improving macroeconomic stability. It should be kept in mind that the decrease in inflation recorded during the month cannot be attributed to policy efforts, but is due to global factors – mainly the slump in international oil prices. Policymakers should instead be asking themselves why the average consumer has not benefitted from this trend.
Some economists have also criticised the methods used in calculating inflation, which they say do not reflect the actual picture of rising price levels. For instance, the CPI is considered the most accurate measure of inflation, as it takes the prices of most necessary consumer items into account. But the basket of goods used to calculate the average Pakistani consumer’s CPI is quite hodgepodge: therefore, even as the CPI depicts decreasing inflation, consumers are faced with an entirely different situation. Similar views are expressed about the other indices. The dubiety of these methods also comes to light when figures regarding inflation published by different organisations and authorities often contradict with each others’.
Keeping such criticisms aside, we may also ask why inflation – actual or portrayed – continues to soar in Pakistan, as compared to other economies in the region. Various triggers drive up inflation every year: it seems that fiscal policy repercussions are more relevant then monetary policy effects in this regard. Inflation dropped during July 2012 just because oil prices were slashed at the beginning of the month. On the other hand, monetary policy seems to be almost neutral in curbing inflation. After 2008, interest rates have witnessed a rising trend, due, in part, to standby loan agreements with the IMF. The IMF had dictated tightening of the monetary policy as a precondition for its financial help: but adopted measures have all but failed to control inflation. The State Bank has now quickly moved to ease monetary policy at the first signs of an ease in inflationary pressure.
Other measures aimed at curbing inflation; such as subsidies, ‘sasta bazaars’ and utility stores; are also largely ineffective due to their limited scope in cater to a larger part of the country’s population. It seems that the only way to reduce inflationary pressures is to minimise costs of doing business and controlling the fiscal deficit with practical, well-directed measures.
THE WRITER HOSTS BUSINESS TALK SHOWS ON FM 101 AND RADIO PAKISTAN AND IS PURSUING A MPHIL DEGREE IN ECONOMICS
Published in The Express Tribune, August 20th, 2012.
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1719053250-0/BeFunky-collage-(5)1719053250-0-270x192.webp "non solar consumers bear rs200b burden")
You have only used ":headline" inflation data which typically jumps up and down. A better measure is the core rate or the core trimmd mean. The SBP web-site should have the numbers.
Last I checked core inflation was still in double-digits. And we have cut interest rates?!:
Very well written indeed. However, the writer failed to highlight the role of government borrowings from the central bank. I am not an economist but have studied little economics so I know some terms better than a layman. Recently I read at some place that this government has made State Bank of Pakistan to print about Rupees 1 trillion (Deficit Financing) to meet its expenses. the article didn't provide the exact details of government spendings out of this trillion but it was used for development. The article also state that meanwhile the deficit financing was underway, the government was also in receipt of US grants under the Kerry-Lou gar Bill which amounted to some 7 billion USD. So if you just sum up the situation for that period, the entire amount of US grant stays un accounted. This government has no economic plans neither they are trying to control inflation. Just for an example, Mr. Zardari was about to start construction on some 11 million dollar statue of Benazir Bhutto some where in Sindh. Han't there been some danda coming from IMF and other donors, Pakistanis would have paid for that statue. Recently Mr. Zardari went to Ajmeer Sharif for personal visit and donated a hefty amount of USD 1 million to the shrine. Circular debts arouse due to financial mismanagement of the government and now government is going to issue TFCs to banks @ of 14.5% pa. All the interest will be passed to end consumer. Circular debt is also due to excessive government borrowing and putting the money in place where it wasn't required.
So actual cause of inflation is Government spendings and borrowings from the central bank ceteris other reasons co-exist.