Talking business

Inflation is biggest story we’re looking at throughout the year, bigger than militancy, drone attacks, any bomb.

What will be the biggest stories of 2011? On top of my list is inflation. Price inflation is quite possibly the single biggest story we’re looking at throughout the year, bigger than militancy, bigger than drone attacks, bigger than any bomb thus far. The reason should be simple to understand.

Nothing holds us all together more than the price level. No ideology, no political party binds us all together into a common world of symbols more than the price level. The price of a litre of petrol or the arrival of an electricity bill are elements common to the lives of so many people that they serve to hold us together.

Look around the next time you’re at a tandoor buying some naan and observe all the other people who are also there for the same purpose. Think about how universal bread, and its price, is to us all.

When the price level is disturbed, it sends shockwaves through all our lives. Some feel it more than others because the keel of the boat on which they live out their lives is shallower.

So for a household that spends more than fifty per cent of its income on its kitchen, a small hike in the price of atta is a grave reality, forcing cuts in essentials elsewhere, such as medicines or education.

What has swept the rug out from under the feet of this government since it came into power in 2008 is not its management of the judicial crisis or the war on terror. What has done this government in are facts as simple as this: the price of a naan at the tandoor was Rs2 when it arrived, today the same tandoor will sell the same naan for Rs7.

And the facts are unpleasant across the board.  The price of a litre of petrol or diesel, the price of onions and tomatoes, or ghee or a unit of electricity have all seen huge disturbances, rocking everybody’s boats – some more violently than others.

Not everything about this state of affairs can be blamed on the past government or on international factors.  Yes, oil prices were peaking at the time the government came in, and yes they’ve been on a march even after they plummeted.  And yes, I know they’re continuing their climb, and will most likely be throughout 2011.

Yes, there was a mountain of government borrowing left behind by the outgoing regime and yes, the monetisation of the deficit had a lot to do with the price shocks of late 2008.

But renewal of the inflationary march in 2010, and it’s most likely continuing ascent throughout the coming year, is the creature of multiple follies.  Follies past can only explain a part of this phenomenon.

The high wheat support price has everything to do with the spiralling cost of wheat, more than petrol or diesel price hikes, and that is something that is in this government’s power to change.  But they refuse to do so because large landowners are the clearest beneficiaries and they don’t want to dismantle this easy and lucrative enterprise to transfer taxpayer funds into their own pockets.

Sugar prices going from the low-forties to the mid-eighties have nothing to do with government borrowing, or fuel price hikes.  Mill owners who are happy with the rentier profits that the spiralling sugar prices generate are only too glad to use their political clout to continue with the racket.

The same can be said for electricity prices and I’m not convinced that fuel prices are rising only because of an increase in international markets.  The pricing mechanism of these items is very opaque and therefore easy to manipulate in favour of powerful vested interests.

And that is the reason why inflation will be the biggest story of 2011.  Because it is the key testing ground of the ruling party’s rhetoric.

If they want to bring prices under control, they can do it.  But will they?  Not even if the price hike begins to threaten their hold on power?  Which do they want more?  Political power or the rentier profits it makes possible?  2011 might be the year we find out.

the writer is Editor Business and Economic policy for Express News and Express 24/7

Published in The Express Tribune, January 3^rd, 2011.