It has always been an avowed policy of all governments to contain the inflationary trend. The present government has been of the view that 'maintaining the low and stable inflation should be seen as a necessary part of the poverty alleviation strategy' and that 'keeping inflation at a low level should be regarded as protecting the poor from inflation tax', as observed in the chapter on 'Inflation' in the Economic Survey, 2002-03.

However, the government has remained largely unmoved and shown little concern, if any, over the increase in prices of a number of essential commodities during the last couple of months.

Although, the government had still been claiming that it had succeeded in maintaining the inflation rate at a lower level, the fact is that the prices had registered marked increase during the last couple of months. According to a recent media report, the Consumer Price Index (CPI) had registered an increase of 5.4 per cent in December, 2003, over the corresponding month of last year, while the Wholesale Price Index (CPI) had registered an increase of 9.6 per cent during the same period.

What should be a matter of grave concern is that the increase registered by the food group of the CPI was more pronounced this time. In the month of December, 2003, alone, the CPI was reported to have registered an increase of more than one per cent.

As a matter of fact, complaints regarding increase in the prices of items of daily use had started to be voiced since the holy month of Ramazan. Such complaints are, no doubt, heard almost every year on the eve of this holy month, but this year the complaints were louder.

Soon after that, the prices of tomatoes had sky-rocketed and people were advised to abstain from the consumption of tomato as it was in no way an indispensable commodity. No doubt, the consumer-resistance is a powerful weapon to combat inflation, but unfortunately this culture, so far, has not taken roots in Pakistan. In the following weeks, prices of wheat and wheat flour and onion had also come under pressure.

Now, all these items have a highly inelastic demand and they also have significant weightage in the family budget of a commonman. Increase in the prices of the aforesaid items is bound to hard-hit all those belonging to the lower income categories.

What could be the cause of these price increases? Primarily, the prices of essential commodities are governed by the law of demand and supply. The spurt in prices witnessed recently may no doubt be the result of several factors.however, the real culprit behind the above-mentioned price increases seemed to be the real/artificial shortage of the commodities in question.

There has always been a tendency in Pakistan to overestimate the production of agricultural crops. Recently, the cotton crop had also been overestimated and the estimate had to be revised downward later. A record rise in cotton prices to Rs3,500 per maund had sent the market in a state of shock. The same seems to have happened with the production estimates of wheat also.

The recent spurt in the prices of wheat/wheat flour could be attributable either to real or artificial shortage of the item. In both the cases, it was the government to blame. If the government had procured enough wheat for its stocks, as done by it in the previous years, the artificial shortage could not have been created in the market by the hoarders and the profiteers. Even the import of wheat had been delayed, while the wheat flour is reportedly being sold at Rs15 per kg in the markets of Karachi and Hyderabad (as against Rs12 per kg last year).

In addition to the above-mentioned causative factors, the 'cost-push' factor is also worth mentioning. During the last few years, the utility charges have increased manifold. Besides, the general sales tax (GST) and the withholding tax is now charged on almost every item, thus inflating its cost. Over and above all that, the local POL prices are being revised upwards on fortnightly basis, on the plea that the international crude prices were going up.

Increase in local POL prices pushes up the transportation cost, the cost of furnace oil and electricity, and the cost of almost every other commodity. The weakening of the government's control on the prices of items of daily use is, also, attributable to another factor. The government had created certain institutions in the 1970's which, in addition to performing other functions, also acted as price stabilizers'.

These institutions included the Utility Stores Corporation (USC), the Trading Corporation of Pakistan (TCP), Passco and the Friday/Sunday Bazars. All these institutions have now started showing signs of deterioration and they have lost much of their vigour and utility, with the passage of time. The above-mentioned institutions need to be revamped and re- invigorated to ensure that they can still act as the price stabilizers.

Also, the arrangement that existed in the 70's and 80's (in the form of Price Stabilization Wing under the ministry of industries, later re-designated as the Pricing and Marketing Wing) to keep a close watch on the prices of essential commodities did not seem to be active any longer.

The above- mentioned organization had done a wonderful job in the decade of 70's, which was characterized by the energy crisis and the international inflation.

With its team of research economists, it kept a round-the-clock watch not only on the prices of essential commodities but also on the local production, exports and imports of these commodities which had a direct bearing on prices. Besides, the organization, also, kept an eye on the monetary expansion, deficit financing etc.

which could influence the prices' on the macro level. As a result of all this, the organization was able not only to apprise the government about the current price situation but, also, cautioned the government on many occasions about the shortages that were likely to occur. The government was able to prevent the sudden jump in the prices of certain items with the help of timely imports through the Trading Corporation of Pakistan or the Utility Stores Corporation.

Since, inflation can jeopardize the government efforts to rehabilitate the economy and accelerate the country's GDP growth rate, besides the hard-hit people belonging to the lower-income groups.

It is imperative that the government should re-organize and re-enforce all those institutions which can help it in keeping the prices at a stable level. Simultaneously, the government should revitalize its monitoring mechanism, so that it can receive timely information about the shortages that could lead to increase in prices of essential commodities.

The government would also be well-advised to ask its concerned organizations to deal more effectively with the monopolies and the oligopolies in order to be able to check the prices of such items as cement, automobiles, etc.