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EDITORIAL: Federal Finance Minister Shaukat Tarin directed the Federal Bureau of Statistics (FBS) to add 19 cities to the 17 used to the Decision Support System for Inflation to record and monitor prices of essential commodities, record the gap between actual prices of essential items and the rates fixed by the district administrations and to regularly compare wholesale (not currently computed by the Pakistan Bureau of Statistics) and retail prices. Real time inflation rates, he added, were required, adding that the government would verify the rates periodically. These directives were issued after a briefing by the Chief Statistician of the PBS a mere two days after Tarin took oath as the country’s finance minister on 17 April 2020 and indicate his priority. These measures, if implemented, would no doubt provide the government with an accurate real time picture rather than a favourable one and enable it to take timely appropriate decisions to deal with inflation.

The general public has been reeling under the adverse effects of ever rising prices since May 2019 when the government signed off on the International Monetary Fund (IMF) programme whose implementation prompted the Fund to project headline inflation (Consumer Price Index) at 13 percent in 2019-20 from 6.5 percent in 2018-19. This was followed by the State Bank of Pakistan (SBP) decision to link the discount rate to the CPI rather than core inflation (non-energy and non-food) without providing any supporting research for this change in policy resulting in a severe contraction in domestic investment (though the country did attract hot money which, as was feared, has mostly been withdrawn since) leading to job losses and pushing hundreds of thousands below the poverty line.

With a decline in productivity those who were retained by the private sector were given the option to either accept a lower or the same wage or redundancy and thus as inflation continued to rise the erosion in the value of each rupee earned became ever more noticeable. While in 2019-20, the government budgeted a raise in public sector employees (and the armed forces) by 2020-21 the government froze salaries and while the armed forces continue to draw the same salary as in the previous year yet many sub-groups of the federal civilian workforce have successfully agitated a raise with the provincial employees voicing their own demands now. In other words, lower output, higher unemployment levels, wage freezes and a rapidly depreciating rupee have compounded the impact of inflation, especially of food items which account for a major portion of the disposable income of the poor and the vulnerable, which in turn created considerable angst amongst the general public forcing the Prime Minister to publicly acknowledge time and again that prices are rising unchecked and that he would look into the matter.

Subsequent to the completion of the inquiry reports on sugar and wheat, and no doubt supported by his economic team leaders who wished to deflect blame for the rise in prices from their policies, the Prime Minister began to focus exclusively on supply side dynamics and began accusing the “mafia” in reference to collusion amongst producers to contain supply to make windfall profits. While not understating the impact of collusion on prices as well as the economic policies under implementation (though there has been a visible easing of the monetary and fiscal policies to cope with the pandemic yet they remain tight in comparison to other countries) yet there have been some administrative lapses till now in terms of ensuring that those operating in Sunday/sasta bazaars follow the rate list of the district administrations. Thus, Tarin’s emphasis during his meeting with the PBS staff on the need for formulating a new hierarchy of administrative controls to provide relief to the masses must be appreciated.

Integrity of economic metrics in general and inflation in particular is very critical because inaccurate data may provide a comfort level to some members of the government but it never ever fools the common man who makes purchases on a regular basis in the market.

Copyright Business Recorder, 2021

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