July 16, 2007	Monday	Jamadi-us-Sani 30, 1428

Persistent inflation is a matter of daily concern for all families, particularly of low income groups. Families with large surplus income can save a part of it and invest and prosper as their asset prices go up, but fixed income groups feel the squeeze of the constantly rising prices and the hardships they impose on them.

What is striking about the 7.8 per cent inflation is that it is 7.8 per cent higher than the accumulated inflation of previous decades. Once the prices go up, they seldom come down and the next year’s inflation is calculated over that accumulated figure.

Now a new element is notable in the approach of family members to inflation and its peak prices. That is the difference in the approaches of the older generation and the younger generation to the higher prices. While the older generation finds the prices galling, it accepts them, though rather reluctantly. And that is because the older generation was accustomed to the very low prices of the past and hoped for the same to continue, more or less,

The younger generation is not familiar with the old low prices like Rs2.60 for a gallon of petrol, 25 paisa for a kilo of atta and Re1 for a kilo of apple. There is a difference between the pre- 1973 generation when the first oil shock came as the Arabs used their oil weapon and the devalued rupee prior to that by 58 per cent.

The imported inflation then played havoc with the family budget with soaring oil prices as one of the plagues and the prices of everything shot up. Since then, prices have been going up and Brent crude oil has touched $76 for a barrel in Britain and the price of palm oil imported from Malaysia has hit its peak.

In the distant past, Henry Ford, founder of the Ford empire took his young son shopping. His son bought something expensive, while the father bought its cheap version. The son protested. “Son”, replied Ford senior, “you can afford what you have bought as you have a rich father, but I don’t have a rich father”

Same situation obtains in many family purchases today in Pakistan. While the father buys something low priced, the son or daughter buys the more expensive item.

The younger generation are accustomed only to the high prices so they are not upset for the prevailing prices as they keep on soaring, as their parents are.

Another aspect of this problem is the high salaries of young executives. . India follows a some what different course, the course of moderation. As a result, India is holding down its prices and holding up the rupee, the Indian rupee is 40.5 to a dollar, while it was 46.1 to a dollar a year ago.

While the Indian rupee is 40.5 to a dollar, the Pakistani rupee is over 60 to a dollar- a clean one third difference which demands we pay Rs2 for every one Indian rupee.

Apart from the high salaries of executives and other fixed income groups, there is plenty of easy availability of credit. Credit cards are galore and more banks are coming with their own cards. Consumer banking makes more credit available to the illegible persons. And lease finance is available for buying luxury cars, acquiring homes and other luxury items. The banks are competing with each other to provide lease finance and consumer banking services and credit cards to the same group of fixed income persons or owners of large assets.

As a result, too many young executives are too indebted and they continue as they find it difficult to resist new offers of loans. Increasing the consumption of the young are the varied fashion shows, flashy advertisements and gleaming home product magazines delivered in affluent homes free. The young executive is financially seduced by too many lenders and they are tempted to borrow more and more.

All that may give an impression of a splashy economy going up and up, but in reality that does not make the economy strong And we cant afford to revalue the rupee when we have a trade deficit of $14 billion, while the exports areat $17 billion. But the real problem is that most of the conspicuous consumption is in imported items, whether they be luxury cars, Rolex watches, Armani suits or Gucci handbags. If such items were locally made, there will be more products to strengthen the sinews of the economy.

Now we have to import three million bales of cotton from India this year, as it was done last year. Let us hope that real value added items will be manufactured and exported out of this cotton instead of only more low count yarn.

Now the bank credit to the farmers this year, has exceeded the target by 22 per cent and it is a happy development. But let us hope the farmers will not waste the money in the manner they have been wasting their resources as in the past. Meanwhile, the fertiliser distributors are cutting in to farmers profit by raising the prices of DAP fertilizers by Rs200 for 50 kg suddenly.

If the young cant live within their means, they take to corruption. If corruption does not yield enough, they take to crime while some of them commit suicide.

Unemployment combined with low wages and high prices lead to corruption and then to crime and we have to save ourselves from this curse.