This is not hyperbole, nor exaggeration for effect. Inflation indices in Pakistan are fast approaching their worst level in recorded history. In fact, the Wholesale Price Index (WPI) during fiscal year to date (July 2022 – Jan 2023) has already averaged in excess of 33 percent, one percentage point higher than 1973-1974, the previous record in nation’s history. Very soon, the anticipated snowball effect in consumer prices may dwarf all past inflationary episodes, unleashing fresh peaks of misery on ordinary citizens.
Yet, as horrifying as the inflationary pace during the current year may appear, it only begins to describe the tip of the iceberg. Modern economic history suggests that episodes of severe inflation can occur as a result of temporary supply shocks. For example, the previous record inflation of 1973-74 took place in the back drop of oil crisis of 1973, when the Arab oil embargo led global energy prices touch a record level in history (in real terms). In contrast, Pakistan’s ongoing inflationary episode is clinically different.
Although politicians would be quick to insist that the current inflationary cycle is a result of post pandemic supply shock and Russian invasion of Ukraine, that’s hardly accurate. A year since the outbreak of war in the Black Sea, crude oil prices are yet to reach peak levels witnessed less than 15 years ago, first during 2008 and then in 2011. But more importantly, Pakistan’s inflationary spiral precedes not only the latest hostilities between the Siberian Bear and the West, but also the outbreak of Covid-19 pandemic.
In fact, measured over five-year intervals, the country is already way past its worst inflationary cycle in history. Since FY18, the Sensitive Price Index – which consists of 52 essential commodities and services consumed by bottom quintile income groups – has more than doubled, rising at 15.5 percent per annum between FY18 – FY23 to date. And this only dwarfs in comparison to the endless spiral in the Wholesale Price Index, which has risen at 18.4 percent per annum during the five-year period. Remember, these episodes began way before the outbreak of the global pandemic, which in fact restrained the price spiral temporarily due to lockdowns on commercial activity.
In contrast, the inflationary spiral of the 1970s was not only caused by the global oil crisis, inflation - as measured by Consumer Price Index (CPI) - was back in the single digit territory in less than three years. Remember, this was also the time of severe political and economic turmoil, with the country still reeling from the loss of its eastern half, and the havoc unleashed by the nationalization program that began in 1972. Compare this to recent economic developments, where even the once in a century pandemic is said to have offered tailwinds to the macroeconomy in the form of stability on the external account.
Most of all, all indications suggest the inflationary turmoil is far from over. From fresh revenue measures implemented under the IMF program; to across the board increases in energy and fuel prices; along with anticipated shortfalls in grain production and rising food insecurity risks; average annual inflation may soon breach 50 percent. With zero macro-economic vision at the policymaking level as to how to break the country out of the vicious cycle.
Yet, political parties on both sides continue to battle for power as if the upcoming years will offer a bed of roses, or as if Pakistan is in for an economic windfall that would dwarf foreign inflows witnessed during War on terror or after the launch of CPEC, leading to a fresh period of price stability. The misery index in Pakistan is fast inching towards conditions which historically result in social unrest and civil strife. Yet, politicians on all sides seek to claw back their way to power, like the French royalty to the guillotine. One can only hope they don’t end up the same way as Louis XVI.