PRICES are surging. And they are increasing at a much faster pace than anticipated, burdening millions of low-middle-income households and raising risks to the economy. PBS data for November shows that the pace of headline CPI inflation has spiked to 11.5pc, the fastest since February 2020. It breaches SBP’s projection of 7pc-9pc for the current fiscal, and the target of 5pc-7pc for the next 18-24 months by a long shot. The month-over-month jump of 3pc in prices from October is also more than a 13-year high. Food has become more expensive and core inflation is rising faster. The growth of 18.1pc in the weekly SPI inflation and 27pc in WPI inflation indicate that the pace of increase in domestic prices is unlikely to decrease soon. With CPI averaging 9.3pc in the first five months of the present fiscal year to November, analysts estimate headline inflation to average 11pc-12pc in the remaining seven months. Pakistan’s inflation rate is driven primarily by demand factors, higher international commodity prices, exchange rate depreciation and inflationary expectations going forward, according to the finance ministry.

While the current government cannot be blamed for global inflation that has seen commodity prices skyrocket in recent months over supply disruptions and increased post-Covid demand, it must be faulted for having a pro-cyclical spending plan despite running a large budget deficit and high debt. It couldn’t put the brakes on the Covid pandemic or world commodity prices but it could have controlled its politically motivated, inflationary fiscal policies that have made millions of families poorer than before as they face increased costs of food, energy, health, education, housing etc. The SBP too cannot be absolved of its failure to forecast correctly and take appropriate action to stabilise prices. Until July, it found ‘price pressures largely supply-driven and transient’. Before that, price pressures were “concentrated among a relatively confined set of items”. It wasn’t until September when it woke up to risks to inflation and balance of payments originating from expansionary fiscal and monetary policies. It took another couple of months and pressure from the IMF to acknowledge the role of ‘money supply growth to above trend levels’ in the emergence of demand-side pressures on inflation, and a need to normalise monetary conditions. People may have been spared at least some of the pain caused by the high cost of living had the government and bank realised the error of their actions a little earlier.

Published in Dawn, December 2nd, 2021

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