Runaway inflation

The monthly inflation numbers for September 2023 are in, and they present a pretty shoddy picture of the state of Pakistan’s economy. Year-over-year CPI inflation has shot up to 31.4 per cent, jumping four percentage points from the previous month’s 31.4 per cent and wiping the gains of the previous three months. While the trend of rising inflation is in line with market expectations after the massive fuel price increases seen in both August and September, the magnitude of the spike is clearly above what the fundamentals warrant, especially in light of how the rupee has steadily appreciated over the last 20 days of September. Additionally, the rural inflation number is again seen leading the trend at 33.9 per cent, a dead giveaway that a large part of today’s inflation is attributable to supply chain shenanigans. Is it possible that black market players scared away from currency speculation by the government’s strong administrative action are taking an increased interest in consumer goods, manipulating prices of essential items? Who can tell? But there is no gainsaying that something is rotten about how our domestic supply chains function.

Take, for instance, how our staple food supplies are hit by one crisis after the other. Wheat and sugar are in particular prone to artificial shortages and sudden price spikes. But these are by no means the only commodities witnessing unexplained price hikes. A look at the underlying data of this month’s price review reveals that the price of sugar year-over-year rose by 89.95 per cent; of wheat flour by 81.29 per cent; of condiments and spices by 78.77 percent; of gur by 68.98 per cent; of rice by 64.71 per cent; of beans by 56.07 per cent; of mash pulse by 36.39 per cent; and of potatoes by 34.55 per cent. These price increases are clearly beyond what is warranted by market fundamentals, and can only be explained based on market manipulation and price gouging. In other words, market malpractice has become the most potent driver of domestic price inflation.

It is heartening that the strong administrative measures taken by authorities to curb smuggling and currency speculation have reversed the rupee’s slide, which has yielded direct dividends to the public in the form of lower fuel prices this fortnight even as global oil prices remain on the upswing. This should go some way towards alleviating inflationary pressure, although it remains to be seen how long this trend can be sustained, especially when the lifting of administrative curbs on imports has increased the demons for hard currencies. Also, gas prices have to be hiked in view of Pakistan’s covenants with the IMF, which will again stoke inflation. The central bank on its part has done pretty much what it could to curb inflation, with limited success – although sky-high policy rate has pushed the cost of doing business unbearably high. Private credit is contracting and the economy has slowed down to a snail’s pace. Further tightening the monetary policy beyond this point may prove counterproductive.

On the other hand, this runaway price inflation is taking a heavy toll on the common Pakistani’s purchasing power. The caretaker government may have a limited mandate and keeping the IMF programme on track may claim the lion’s share of its attention, but none of this warrants turning a blind eye to the plight of the regular Pakistani, who is finding it increasingly difficult to get about for work or school after paying for the family’s bread and butter. In fact, the poorest among us are finding it impossible to keep the wolf from the door with winter just round the corner. They deserve better and, all things considered, strong administrative action to stamp out market malpractice is pretty much the only option open to the authorities to check unfettered and unwarranted inflation. The sooner the caretaker government realizes this, the better.