INFLATION, the rate of increase in the prices of goods and services over a given period of time, has receded dramatically in recent months, and is close to the State Bank’s target of 7pc. The finance ministry in its monthly economic report expects inflation to slow down to 5.8-6.8pc in November, and then further to 5.6-6.5pc in December. Last month, inflation had clocked in at 7.2pc, significantly lower than the 26.8pc recorded a year ago and the multi-decade high of nearly 40pc in May 2023. The report said the consumer price index has fallen to 8.7pc in the four-month period from July and October from 28.5pc in the same period last year. A high base effect and improvement in food supplies are major factors behind the slowing inflation in addition to the impact of a tight monetary policy, favourable global oil prices and delays in another gas tariff hike with low petroleum levy rates.

The pace of increase in prices may have come down but the cost of living remains steep. The nominal earnings of middle-income homes have not risen as much as prices in the last couple of years. They are worse off because their purchasing power or inflation-adjusted real income has fallen drastically, forcing most people to downgrade their standard of living. The worst part of the inflation story is that there is little to no hope of real incomes going up anytime soon as economic growth is projected to remain at its weakest level despite the recovery in macroeconomic fundamentals. According to forecasts about the future growth outlook published by multilateral agencies, Pakistan’s economy is unlikely to break out of low-growth mode over the next few years. The path to faster economic growth is strewn with difficult decisions. For example, it is now time to stabilise the country’s debt dynamics to build fiscal space, a cornerstone of macroeconomic stability, for growth. This requires a massive increase in tax revenues and cuts in the government’s wasteful expenditure. The decline in interest rates has provided some fiscal relief to the government but it is no alternative for tax and expenditure reform. Then the authorities should begin executing structural reforms to lift productivity for enhancing growth prospects. Unless we address the challenges we face, the chances of any improvement in the lives of the common people will remain dim.

Published in Dawn, November 29th, 2024