THE world food prices are high and have been rising steadily. The commodity price index and the food index have risen globally by 19.3 per cent by 1.4 per cent within a year. The Economist’s all-item index has recorded a rise of 29.6 per cent within a year and the all metals index by a staggering rise of 55 per cent.

Recently, milk powder prices shot up in Europe and pushed up import prices in Pakistan steeply. Along with that prices of indigenous milk also rose in spite of the sudden increase in the number of companies competing in the domestic market.

Prices of imported palm oil have also increased with its impact, a rupees four per kilo rise in the local market and the forecast of a further rupees nine per kilo rise soon unless the government reduces its heavy duties and taxes which are cumulatively Rs19 per kilo. Meanwhile, sugar mill owners wanting higher prices in view of what they say is a 33 per cent rise in the price of sugar cane. But the government has chosen to reduce the sales tax on sugar modestly so as to bring down the price of sugar in the retail market. Let us hope the retail prices really come down.

The economic coordination committee of the cabinet has now decided to permit export of half a million tons of wheat in view of the adequate stocks the country has and the expectation of a 23 million tons wheat crop in summer. Let us hope the wheat wholesalers do not take to the usual hoarding, price manipulation and profiteering.

Meanwhile the world oil prices are going up again after having dropped to sixty one dollars a barrel from the peak of $79. That has prompted the government not to reduce POL prices contrary to earlier indications and in spite of the widespread clamour for price reduction. The commodity price index shows the Texas’ oil crude rising by 9.8 per cent in a year and by 9.3 per cent last month.

When the food prices are going up and so also the POL prices, the government is talking of a core inflation index which does not cover food prices or POL prices and that index has come down in Pakistan to 5.6 per cent. In a poor country with a large number of dependents in each family food and POL prices consume a great part of the family budget. The poor use kerosene for cooking as well. And the basic food prices are high .

The food budget of a western family with several earners may be small or a small part of a large income. The share of the oil expenditure may also be small in the face of large income, but in Pakistan any basic index without including food and fuel prices is a mockery of the index and such calculations should be discarded as utterly futile when a third of a people are living below the poverty line.

What is more relevant for the masses is a sensitive price index meant for those in the Rs3000 per month income group. That reflects the reality of the cost of living for the masses which is now 12 per cent over last year.

In winter, normally vegetable prices are usually low because of bumper crops, but now the vegetable prices are very high including those of onions and tomatoes. Tomato sells in this season a plenty for Rs30-40 a kilo. Onion is selling at Rs30 a kilo, we are told in view of the short fall of its production in Sindh.

Large imports of vegetables from India have not helped to bring down vegetable prices. Maybe but for that the prices would have been far higher and the profiteers would have had more of a field day.

Now the prices of vegetable ghee and cooking oil are going to make headlines for sometime in view of the new uses for them globally and the resulting shortage. The retail prices of vegetable ghee has risen by Rs4 a kilo with the threat of a Rs9 rise soon.

The shortage has arisen as palm oil, soya bean oil and corn oil are being converted in to bio diesel in many countries led by Latin America. The European Union has decided to devote five per cent of its oil seeds for converting in to bio fuel.

As a result, the price of RBD palm oil has risen from $415.6 a ton in January to $620 a tons in December and its landed cost in Pakistan has risen from Rs41824 a ton in January to Rs56397 for a ton now, inclusive of customs duty of Rs9050, federal excise duty of 15 per cent and diverse other levies. The total duty and taxes comes to Rs19 per kilo.

The solution in this context for the government is to reduce import duties and other taxes on palmolien instead of taxing the product more because of the higher import cost. But the government has decided not to adopt that course as it does not welcome any loss of revenues.

The government has the same argument against deduction of POL prices also. Higher revenues is a supreme concern of the government. But there is a limit to the burden of increased inflation and internal price rise which the poor consumers can bear. It cannot be the exporters in Malaysia raise the price of palm oil and the government increases the duties on it quantitatively.

In an election year, the government cannot afford to tax the people too much and make them put up with our own price increases. It has to be rational and come up with positive relief measures and cannot confine them to sugar alone.

Otherwise the vegetable ghee manufacturers will manufacture far less of palmolien and cause a crisis in the market which the government would certainly want to avoid in an election year.

The larger demand in the country for cellular phones which has now reached a total of ten million is both to meet the needs of the people as well as feed the thriving mobile phone thefts. But the import bill is truly large, and the government loves the large revenues from it.

Such enlarged demand will be there when there is plenty of money afloat in the country and in banks which delight in the very profitable consumer banking services.

The total bank deposits in December rose by 16.3 per cent from Rs2520 last December to Rs2920 billion. But the disbursement of the bank loans rose by 19.2 per cent in the same one year period which is equal to 74.5 per cent of the deposits compared to 72.3 per cent last year. The total of the loans could have been far higher but for the rather tight monetary policy of the State bank of Pakistan to restrain inflation. We have to see further tightening of the monetary policy to achieve a lower level of inflation and see the prices fall.