ISLAMABAD: The government conceded on Thursday average inflation will surpass its budgetary target and remain at 29 per cent for 2022-23 owing to the unprecedented depreciation and rising global commodity prices.

According to the Pakistan Economic Survey 2022-23 released on Thursday, the inflation target for the outgoing fiscal year was 11.5pc. Global inflationary pressures have intensified in recent years even though there’s been some improvement in the global supply chain over the last few months.

The survey also stated that the international commodity price outlook is favourable and may help offset the negative impact of currency depreciation. Additionally, timely measures leading to a better crop outlook, expected political stability and a stable exchange rate are expected to contribute to price stability.

In the medium term, the inflation rate is expected to normalise due to improvements in the agriculture sector and favourable global and domestic conditions. Two factors contributed to inflation in Pakistan. One, as a net importer of food and petroleum products, the rise in crude oil prices due to the global crisis has caused double-digit inflation since November 2021. Two, depreciation has further increased the prices of imported items.

The rupee depreciated by around 23pc in 2021-22. During the current fiscal year, the local currency has depreciated by 28.4pc, from Rs204.60 at the end of June 2022 to Rs285.40 on June 1, 2023. The current inflationary pressure in the domestic market is being impacted by exchange rate depreciation in 2021-22 and 2022-23 as Pakistan imports crude oil, edible oil and pulses etc from the global market.

According to the survey, inflation has increased from 13.4pc in April 2022 to 36.4pc in April 2023. During this period, the current government came to power after replacing the previous government through a vote of confidence. Food inflation has been even higher, reaching 46.8pc in urban areas and 52.2pc in rural areas.

Food prices in Pakistan have rapidly increased with wheat flour increasing by 106.7pc, chicken 43.1pc, pulse gram 48.4pc, rice 87.9pc, milk 36.4pc and cooking oil 34.7pc in April 2023 versus a year ago.

According to the survey, the weakening of the exchange rate, rising global commodity prices, reduced domestic subsidies and flood-related disruptions have significantly reduced the purchasing power of low-income households. This threatens the progress made in poverty and food security over the last decade, as reported by the Food and Agriculture Organisation of the United Nations.

The current financial crisis has made it difficult to import essential food commodities and inputs. Pakistan imports around 10pc of its wheat requirements, mainly from Russia and Ukraine, which has led to an increase in domestic prices and high support prices for wheat for 2022-23.

High fuel prices have increased production and transportation costs, making food more expensive. The high cost of fertiliser has also made it difficult for farmers to afford essential inputs. The poultry industry is facing a crisis due to high import costs and restrictions on soybean imports.Although international prices for agriculture-related commodities began decreasing in the third quarter, currency depreciation and high fuel prices have prevented this from being reflected in domestic markets.

Published in Dawn, June 9th, 2023