Entrenched inflation

Published January 5, 2022

THE trend has caught on. That’s exactly what the new CPI inflation numbers, the broadest measure of what people pay for the goods and services they consume or use, show. Headline prices jumped by a whopping annual rate of 12.3pc — the highest level in 22 months — in December 2021, according to Pakistan Bureau of Statistics data. But people do not need these numbers to be reminded of the rapidly increasing cost of living. They have to deal with this pain every day when they purchase groceries, fill up their vehicle tanks and pay their electricity, health and education bills. The prices of perishable food items have recorded a decline. However, this is only a temporary phenomenon that does not bring any meaningful respite for low-middle-income families that have been struggling to cope with the high prices of daily essentials for over two years. If the trend of the last two months continues, and it will, headline inflation is likely to stay around 11pc to 12pc over the second half of the present fiscal year to June. Another measure of inflation, the so-called core rate that removes the more volatile food and energy prices from the CPI mix, also rose at an annual rate of 8.5pc; it is up by 1.1pc month-over-month from November. Like CPI inflation, the trimmed core is also in the double digits. That illustrates how entrenched inflation has become in the economy.

Price stability has been the biggest challenge facing the Imran Khan administration as well as the central bank. Regrettably, the government’s repeated pronouncements regarding the rising prices do not reflect any seriousness, with minister after minister telling the public that it is just a temporary phase. The official line on the soaring prices in the country has been inconsistent, sometimes blaming ‘hoarders’ or the ‘flawed economic policies of the PML-N government’ and sometimes the current ‘global commodity boom’ caused by Covid supply disruptions. In defending their government, the PTI ministers conveniently disregard the impact of their plans to push economic growth by increasing money supply in the economy and handing out generous fiscal incentives without considering the ill effects of such policies. Yet people who are increasingly finding it harder to put food on the table and pay their energy, education and health bills remain unimpressed. Inflation is a real issue for the public. Telling them that it’s not, or that it’s transitory, amounts to insulting their intelligence.

Published in Dawn, January 5th, 2022

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