There is no respite from inflation. The headline recorded at 24.5 percent in Dec and the half-year average stood at 25 percent – the highest since the 1970s. And the inflation dragon is yet to settle down. There are two economic options going forward – one is to go to the IMF which would bring more imported and energy inflation. Others to default—in which case, there would be runaway inflation.

The last few months are perhaps the most difficult for the households of Pakistan in terms of facing inflation, and the situation is likely to remain grim. There is clear evidence of inflation expectations building up. That fear is highlighted by SBP in its last monetary policy analyst briefing. The politically motivated fiscal response, parallel exchange markets, and late monetary policy response is making these expectations even more ingrained. That is visible from sharply growing core inflation. It stood at 15.5 percent in the 1HFY23 – the highest since 2HFY09.

Nonetheless, the biggest increase is in food prices – up 31.9 percent in the 1HFY23. The hit is higher in the rural areas where the food inflation was recorded at 37.9 percent in rural areas. Even non-food is more deadly in the rural segment – at 20.7 percent in rural versus 14.8 percent in urban.

The monthly increase in headline inflation remained subdued in the last month – up 0.5 percent. Petroleum prices have largely remained unchanged. Then perishable items' prices declined by 12.5 percent. It is seasonal. However, the increase in non-perishable is higher at 2.4 percent.

There is a definitive decline in the purchasing power of daily wagers over the past few years. People can afford fewer rotis and are perhaps consuming less amount of other food essentials than they used to. Wages are moving up, but these are not enough to cover the decline in purchasing power. And the situation can get worse.

The economic conditions are very delicate. With falling reserves every week, the imports are being contained. And the difference between interbank and open market rates is growing. The currency is expected to decline and that is making people prepone demand and hoard non-perishable food items along with oblivious liquid assets choices of stable foreign currencies and gold.

The prices of goods are slowly adjusting upward in anticipation of currency depreciation. Energy prices – especially gas would increase significantly in the next few months. SBP must work on curbing growing inflation expectations by bringing currency to its equilibrium and increase in interest rates to spur savings in PKR. However, without a prudent fiscal response, SBP tightening would have limited efficacy.