Inflation worries

Another worrying indicator about the Pakistani economy has been confirmed last month; the rate of inflation has continued to increase significantly under the current government. Inflation for February 2018 came in at 8.2 percent, much higher than the 5.12 percent inflation rate when the PTI took over in September. Itself a fairly high rate, the situation has been worsened by rupee depreciation, higher interest rates and greater consumer demand. This means that inflation has crossed the four-year high of 6.78 percent from October last year, which occurred during the increase in global oil prices. While the PML-N did manage to bring official inflation down to a manageable level, it appears that controlling prices is not priority number one on the current government’s agenda. Most of its ongoing set of policies are directly or indirectly increasing the cost of living in the country. If the government is going to claim that it is trying to curb inflation, it would be wrong. The ongoing policies include depreciation, increasing the interest rate and increasing utility bills. Coupled with the hike in petrol prices for March, the situation is set to get worse.

What is worrying is how unprepared the government is for this price hike. According to its own estimates, inflation was going to remain at six percent for the current fiscal year. This figure has already been hit in February, which means that Pakistan could easily see 8-9 percent annual inflation by the end of the year. While the hike in prices will cause great misery, it is more worrying that the government seems unprepared. The least one can expect is for the government to know the real impact of its policies. Another worrying facet is that the greater push for inflation came from outside the food and energy sectors. Core inflation has come in at 8.8 percent. Higher fuel prices are having a significant impact, as the cost of transport is shifted onto consumers. Income does not improve as quickly as prices, which means that the real rate of poverty is likely to increase next year amidst high prices and the rupee depreciation. This might be a necessary correction this year, but such a high rate of inflation will not be sustainable in the coming years. The government needs to steady the ship.