nflation is a persistent economic phenomenon where the general price levels of goods and services increases over time, eroding the purchasing power of money. It stems from various drivers such as heightened demand, rising production costs and expansive monetary policies. While moderate inflation can indicate economic vitality, unchecked inflation often results in severe socio-economic repercussions, disproportionately impacting lower-income groups.

Historical examples like Zimbabwe and Venezuela exemplify the devastating consequences of hyperinflation. In Zimbabwe during the late 2000s, the high prices rendered the national currency virtually worthless, causing widespread poverty and unemployment. Similarly, Venezuela’s hyperinflation, fuelled by political instability and ineffective policies, triggered severe shortages of essential goods, forcing millions to migrate in search of better living conditions.

Recent global trends provide insight into inflation’s evolving dynamics. According to the OECD’s statistical release on November 6, 2024, inflation among member countries averaged 4.4 percent in September 2024, a decline from 4.7 percent in August. This reduction was primarily driven by a year-on-year drop of 2.2 percent in energy prices, with 34 of 38 OECD nations reporting falling energy costs. Seventeen countries experienced negative energy inflation, a trend continuing from prior months. Despite this decline, the average price levels in OECD countries remain 30 percent higher than pre-pandemic levels (recorded in December 2019).

While falling energy prices provided some relief, food and core inflation (excluding volatile items like food and energy) demonstrated resilience. Among G7 nations, overall inflation decreased to 2.2 percent in September from 2.4 percent in August, with France seeing the most significant improvement due to falling energy prices and slower service inflation.

Conversely, food inflation experienced a slight rise, driven by increases in Italy, the United Kingdom and the United States. In the Eurozone, inflation fell to 1.7 percent in September, the lowest since June 2021, primarily due to a 6.1 percent decrease in energy prices. However, preliminary October estimates by Eurostat suggest inflation edged up to 2.0 percent, reflecting a moderation in energy price reductions.

The G20 presented a more varied picture. Inflation in these countries eased to 6.0 percent in September from 6.2 percent in August. However, Argentina’s inflation remained above 200 percent despite a fifth consecutive month of decline, underscoring the dire challenges faced by its citizens. Meanwhile, India and Brazil recorded inflationary upticks, signalling regional disparities in economic stabilisation.

OECD’s data highlights the intricate nature of inflation management in today’s interconnected global economy. Temporary reprieves from declining energy prices are insufficient to address enduring challenges such as food inflation and core inflation. Effective monetary and fiscal policies must strike a delicate balance between curbing inflation and fostering growth. Structural reforms addressing supply-side constraints, coupled with targeted subsidies and social safety nets, can mitigate the adverse impacts on vulnerable populations.

In Pakistan, inflation remains a pressing challenge that profoundly influences socio-economic conditions. November 2024 witnessed a significant reduction in the Consumer Price Index, with the year-on-year rate falling to 4.9 percent from 7.2 percent in October and a staggering 29.2 percent in November 2023. This decline marks a stark improvement from the hyperinflationary peaks of 38 percent witnessed in 2023. However, returning to price levels comparable to 2017 remains a formidable task, requiring sustained economic interventions and long-term structural reforms.

Elevated inflation in recent years has eroded consumer purchasing power, disproportionately affecting low and middle-income households. The rising costs of essential commodities, including food and utilities, exacerbated financial strain on families, while businesses grappled with higher production costs that hindered growth and competitiveness. Although inflationary pressures have subsided, their effects persist. Real incomes remain stagnant, failing to recover proportionately with price stabilisation. Many households continue to struggle financially, emphasising the urgency of policy measures that enhance purchasing power and mitigate inequality.

The recent CPI data offers valuable insights into inflation’s dynamics. Urban CPI increased by 0.49 percent and rural CPI by 0.48 percent month-to-month in November 2024. On an annual basis, urban inflation grew by 5.24 percent, outpacing rural inflation to 4.31 percent. Food prices displayed mixed trends, with urban areas witnessing significant hikes in items like tomatoes, eggs and potatoes. Staples such as chicken and fresh vegetables saw price reductions.

Non-food categories, including woolen garments and household textiles, recorded price increases, whereas electricity charges and certain construction inputs declined. This moderated inflation reflects a high base effect from prior years’ hyperinflation and improved macroeconomic stabilisation driven by stringent monetary and fiscal policies.

To achieve price levels akin to 2017 demands a comprehensive and multifaceted strategy. Monetary policy adjustments are critical, as the central bank’s current policy rate of 15 percent can be incrementally lowered to stimulate economic activity without reigniting inflation. Addressing supply-side inefficiencies in agriculture and energy sectors is equally important.

Investments in storage infrastructure, transportation networks and post-harvest technologies can significantly reduce production costs and curb price volatility. Resolving the circular debt in the energy sector and transitioning to renewable energy sources can further lower costs and augment energy security.

Income disparities must also be addressed to restore consumer purchasing power. Real wage growth aligned with declining inflation is necessary to enhance living standards. Expanding targeted social safety programs, such as the BISP initiative, can provide critical financial support to vulnerable populations.

Fiscal discipline, encompassing tax base expansion and efficient revenue collection, remains vital to minimising reliance on inflationary deficit financing. Encouraging foreign direct investment and promoting industrialisation can enhance supply capacities and reduce dependency on imports, thus mitigating exchange rate vulnerabilities.

Global economic conditions continue to influence inflation trends, posing potential risks to sustained stabilisation. Fluctuating international oil prices, geopolitical uncertainties, and shifting global market dynamics necessitate vigilant monitoring and adaptive policy responses. Enhancing agricultural productivity through modern farming practices, access to quality inputs and robust research and development can stabilise food prices while reducing import dependence.

To ensure that the benefits of lower inflation reach the general public, the government must focus on effective mechanisms for price monitoring and regulation. Strengthening consumer protection laws and enhancing market transparency can prevent unwarranted price manipulation by intermediaries.

Subsidies for essential goods and targeted assistance programmes should be prioritised to alleviate financial burdens on low-income households. Public awareness campaigns can educate citizens about government initiatives and encourage responsible consumption practices.

A strategic way forward to reinforce the national economy involves fostering sustained economic growth, which inherently helps in maintaining low inflation levels. Economic growth enhances productivity and output, alleviating supply-side pressures that contribute to inflation.

Policymakers should emphasise investment in key sectors, such as manufacturing, agriculture and technology to drive innovation and efficiency. Diversifying the energy import portfolio and exploring regional partnerships for energy trade can provide stability against global oil price volatility. Renewable energy projects can reduce long-term dependence on costly imports.

Strengthening the labour market is another pivotal step. Policies that encourage skill development, education and entrepreneurship can boost employment and income levels. Higher incomes not only improve purchasing power but also stimulate consumer demand, fostering a virtuous cycle of economic growth and stability. Streamlining bureaucratic processes and improving governance can create an environment conducive to investment and industrial expansion.

To safeguard against future inflationary spikes, Pakistan’s fiscal and monetary policies must remain adaptive and responsive to changing global and domestic circumstances. Investing in research and data analytics to forecast economic trends can enable proactive measures. Collaboration with international organisations and adherence to best practices in economic management can further enhance resilience and sustainability.

While the reduction in inflation to 4.9 percent is a commendable milestone, the journey towards long-term economic stability and equitable growth requires persistent efforts. A combination of targeted social interventions, structural reforms and strategic investments is essential to transform the benefits of lower inflation into tangible improvements in living standards. By prioritising inclusive growth and adopting a forward-looking approach, Pakistan can lay the foundation for a resilient economy that safeguards the well-being of its citizens and ensures sustained prosperity.

Dr Ikramul Haq, an advocate of the Supreme Court and writer, is an adjunct teacher at Lahore University of Management Sciences.

Abdul Rauf Shakoori is a corporate lawyer based in the USA.