EDITORIAL: Consumer Price Index (CPI) rose by 4 percentage points in September – 31.4 percent year on year against 27.4 percent in August. Three observations are in order. First, CPI rose in spite of a significant decline in food inflation - from 38.3 to 33.9 (urban) and 40.6 to 35.4 (rural) year-on-year.
While this decline does indicate success of the crackdown on smugglers of consumer items across our porous borders yet it is relevant to note that while some seasonal perishable items did witness a decline yet weekly surveys of various markets in the twin cities carried out by Business Recorder reveal that by and large the higher transport costs due to the escalation in the prices of petroleum and products negated gains due to seasonal variations in prices.
Second, inexplicably non-food items witnessed a rise from 16.3 to 26.8 (urban) and from 22 to 32.3 (rural) in September against August; however, this raises questions as to the success of the crackdown on currency speculators, given that non-food items, including non-perishables (cooking oil in particular) as well as fuel are imported and hence should not have witnessed a rise in their indices.
And finally, while housing, water electricity, gas and fuels are lumped together with weightage of 27.03 percent shown to have risen by 0.42 percent over the previous month yet the major contributor to the rise was liquefied hydrocarbons (plus 9.23 percent).
The CPI of 31.4 percent indicates a widening differential with the discount rate, which was unchanged at 22 percent during the last Monetary Policy Committee meeting – from 5.4 percent in August to a whopping 9.4 percent.
While it is unclear whether the current MPC is linking the discount rate to core (as was the past practice) instead of CPI (as was the practice during Dr Reza Baqir’s tenure as Governor State Bank of Pakistan) yet core inflation rose by 0.2 percentage points in September – from 18.4 in August to 18.6 in September.
There is no doubt that the rise in core inflation is too small for the International Monetary Fund (IMF) to pressurize the SBP to raise the rate as and when the first quarterly review of the Stand-By Arrangement (end-September data) is being negotiated.
However, critics argue that this is precisely why core inflation may have been understated – a claim that they can easily substantiate by pointing out that the urban rise year on year for September is cited at 5.4 percent (from 25.9 percent in August to 27.3 percent in September) and for rural at 8.6 percent (from 23 in August to 25 in September).
The Sensitive Price Index best reflective of the impact on the kitchen budget of households year on year rose from 27.9 percent in August to 32 percent in September – the highest since June this year.
And wholesale price index rose from 24.3 percent in August to 26.4 percent in September – a rise that does reflect the shutting down of industrial units though unfortunately this rise not synchronize with the actual rise in input costs, including those costs that are referred to as administered prices, which were agreed under the ongoing SBA with the IMF.
With just three months into the current fiscal year inflation is coming close to the pre-SBA prediction by former Finance Minister Hafiz Pasha who had warned that without a Fund package inflation would rise to 70 percent, and with a package 35 percent.
The stipulated first SBA review would take account of end-September data and in this context there must be serious concerns amongst the stakeholders that as the rate of inflation for September is well above the 25.9 percent average predicted by the Fund (lower than the 28.3 percent for July and 27.4 percent in August) the average rate for the year may be well above the Fund prediction – a situation that may erupt into violent street protests, which would raise the risk of adherence to many of the Fund conditions, especially those pertaining to administered prices.
As indicated during the previous Fund programme these prices are not subject to renegotiation and in the event that the government does not follow through all borrowing from multilaterals and bilaterals (including friendly countries) will freeze till the government capitulates and begins to implement the Fund’s harsh upfront conditions in letter and spirit.
The country’s economy is between the devil and the deep blue sea and the reason is sustained flawed policies by successive administrations, civilian as well as military, for decades.
The only way out is to slash current expenditure for the ongoing year instead of raising it by a whopping nearly 53 percent this year from what was budgeted for last year and around 26.5 percent from the revised estimates of last year.
Sacrifice is required on the part of the major recipients of the current expenditure – be it civilian administration, state pensioners who do not contribute a penny to their pensions and the military.
Copyright Business Recorder, 2023