After all that’s said or done, the fact of the matter is that the bleeding has stopped under the caretaker setup. The wholesale loss of purchasing power across the economy, which began four years ago in early 2019, has finally stopped (or at the very least paused). At least that’s what the latest price level data from PBS seems to suggest.
This is not to say that the outgoing year wasn’t horrible. In many ways, it may have been the worst year for the economy in history, as average annual inflation of 31 percent during CY23 followed nearly 20 percent annual inflation during the preceding year, CY22. The average price level in the economy has doubled in just five years. During the same period, the contribution of the food group to headline CPI climbed up to 46 percent – almost four times higher than just five years ago.
But CY23 also became the year when the bleeding finally stopped. More accurately, the pause began in the second half of the calendar year and coincided with the transfer of power from the coalition government of PDM to the caretakers. That is not an endorsement of extension of the powers or the tenure of the caretaking setup, but of its policies. The measures undertaken appear to be working, and ordinary Pakistanis would be better off if these policies continue, especially post-elections.
Some might insist that this is just the natural order of things and that prices cannot keep rising indefinitely. That’s not correct. Between June 2022 and Sep 2023, inflation expectations became truly unanchored in the country, as decision-making became handicapped in the face of Pakistan’s poly-crisis, with all instruments of economic policy – fiscal, monetary, and external trade – failing to make the required adjustments. What followed has truly been a disaster of epic proportions, with the purchasing power of ordinary Pakistanis set back by at least a decade (if not much longer).
Yet, at the risk of expressing optimism when it is least welcome, there may be some benefit in wondering what could have been. More specifically, how much worse could it have gotten. Unlike Argentina or Turkey, where inflation rose to 161 percent, and 65 percent during 2023, respectively, Pakistan did not enter a cycle of hyperinflation. When inflation expectations become unanchored, that is exactly the risk economic managers face. Regrettably, Pakistan’s economic managers flirted with the edge of the precipice until the eleventh hour but finally reigned in the commanders of the Arkham asylum before they could jump off the cliff.
Not only has the rate of inflation finally begun to slow down – although still not fast enough – prices across key economic segments have finally begun to plateau, but some are also showing early signs of easing. That it would take purchasing power being set back by a decade for inflation to finally ease is a heartbreaking sight, but the demand destruction is finally delivering. If wage data is any indicator, Pakistan did not enter a wage-price spiral, and that should bring substantial relief. Could the cost borne by ordinary Pakistanis have been lower significantly if common sense decisions had been taken in a timely fashion? Maybe, but that’s for the voters to determine, come election day.
Hopefully, the electorate has learned its lesson, and will not hand over the keys to the League of Anarchy. But the most important thing is that the citizens must be given a chance, rather than handing over the asylum back to Joker in a post-election coronation. Here’s to hoping.
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