EDITORIAL: The Sensitive Price Index (SPI) was 5.05 percent year-on-year for the week ending 23 October 2025 due to higher food prices, including those of onion, sugar, wheat, flour and tomato. Given that week-on-week the rise in the SPI was 0.22 percent, the conclusion is that the impact of the floods on perishables is easing.
The income level that suffered the maximum due to inflation as calculated by the Pakistan Bureau of Statistics (PBS) was 22,889 to 29,517 rupee per month quintile at 6.06 percent year-on-year followed by income from 17,733 to 22,888 at 5.49 percent followed by the income group up to 17,732 rupees per month.
Inflation calculation, however, does not take account of the dynamics of a household — for example, a household with two school-going children would allocate more funds for education than another or one with older people would spend more on medical expenses.
Economists routinely challenge inflation figures calculated by the PBS, attributing it to overarching political considerations of nearly all administrations — past and present. This view was endorsed by the International Monetary Fund (IMF) in its 10 October 2024 documents noting, “major shortcomings” that “remain in the source data available for sectors accounting for around a third of Gross Domestic Product… (and emphasised) issues with the granularity and reliability of the Government Finance Statistics (GFS)” — an observation that led to a technical assistance (TA) designed to improve GFS, including formulating a new Producer Price Index (PPI).
The conditions agreed between the Fund and the government contained in the Memorandum of Economic and Financial Policies, as is the norm, noted that the TA that would assist the authorities to “review current data sources and compilation processes and provide guidance on how to improve fiscal reporting in accordance with international standards.” The TA began on 1 July this year and is expected to be completed by the end of June 2026 though it is the implementation of the TA recommendations that would provide good results.
The Fund’s programme design for Pakistan is to deal with inflation through a tight monetary policy; notably, a high discount rate to mop up excess liquidity — a policy option that is used in the developed economies that do not have a parallel informal economy. With the government the main borrower from the commercial banking sector to fund its current expenditure budget deficits have become unsustainable — an inflationary policy. In addition, the private sector is routinely crowded out (which explains the decline in private sector borrowing in recent years) with growth stalled and a consequent negative impact on unemployment thereby raising poverty levels to the current 42 percent as per the World Bank.
It is also relevant to note that market imperfections prevail in Pakistan with a consequent negative impact on inflation, which include: (i) there is a pervasive (private sectoral) influence on administrations through establishment of producer associations/organisations — irrespective of whether the number of buyers and sellers is too large to influence price — and registering them with the Securities and Exchange Commission of Pakistan; for example, All Pakistan Textile Mills Association, All Pakistan Sugar Mills Association, All Pakistan Cement Manufacturers Association; and (ii) for public sector entities engaged in commercial activities sales before taxes are applied, which necessitates a comparison between receipts from sales and production costs of goods and services sold. In this context, the Fund policy is for full cost recovery and this explains why our tariffs are higher than the regional average.
To conclude, the PBS not only has to revisit weightage given to various items but also take account of the prevailing market imperfections — elements that one would hope the IMF TA will assist in.
Copyright Business Recorder, 2025
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