It was in June 2022 that Pakistan’s CPI-based inflation figure topped 20%. It has since then stood stubbornly at over 20%, hitting a peak of 38% and since slowing to 23.1% in February this year. This is two years of high inflation, marked by an interest rate that has done nothing else but catch up to escalating prices. Such is inflation’s rigidity that the State Bank of Pakistan (SBP) revised its annual inflation target in the previous monetary policy announcement. The next one is now due on March 18.
While there are calls to reduce the key interest rate – albeit, in phases – let’s examine the on-ground reality. I am a field reporter, and I understand the pulse of the public.
This is what the public feels about inflation – the pace at which prices were running may have slowed down a tad, but incomes have come nowhere near to match it.
As I buy groceries daily, I routinely feel the pinch. To read that inflation is at its lowest in over a year feels like salt on the wounds. One cannot discount economic data, but looking at numbers in isolation is also a foolish endeavour.
Latest official data suggests that food inflation was a key reason behind the lower inflation figure for February. But take a round as Ramazan began, and you will be disturbed. Pakistan is reeling under the mistakes made over the last several decades – including failure to increase agriculture output and productivity – and prices of essential goods is just one by-product of the failed economic policies.
When it comes to price trends, regional disparities also contribute to inflation figures being skewed a bit.
Pakistan’s diverse geography means that there are significant variations from one region to another, especially given the transport cost that has increased manifold over the last couple of years.
Its economy also heavily relies on import of many goods, including oil and food items, and while the exchange rate stability may have kept that in check, high energy costs in Pakistan have added to the woes.
Such is the misfortune that Pakistan is paying a high price of electricity when its consumption is nowhere near the developed world – meaning output is considerably lower as well – and increase in tariffs have actually contributed to a further decline in consumption. This, in turn, will increase tariffs. Talk about irony.
A new government is, however, now in place. A cabinet has finally been formed. A career banker is at the helm of fiscal and financial affairs. Many argue the choice is much better than Ishaq Dar. Some say Dr Shamshad Akhtar would have been a better person given policy continuity and the International Monetary Fund (IMF) negotiations.
The prime issue will still be price-stability. The PML-N argued that it lost its political capital as it navigated economic troubles. It is now at the helm again, despite the loss. It now has the mandate of five years. This is a good enough time period to help Pakistan. The challenges are known, so are the solutions. There has never been a direr need for conflict-resolution. Time will tell if there is will to do it.
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