CONTRARY to government projections and market expectations, the cost of goods and services for the public during February rose by 8.7pc, one of the fastest increases in a given month owing mainly to the resurgence of food and electricity prices. The February CPI inflation reported by the Pakistan Bureau of Statistics jumped to a four-month high after having slipped to 5.7pc the previous month. The low January CPI had afforded the rulers an opportunity to claim that the reduced pace of increase in prices was “lower than when our government was formed” in 2018. A slowing inflation rate in January had apparently also led the finance ministry to predict that the sliding trend in price growth would continue and the State Bank to issue ‘forward guidance’ in its last monetary policy statement to quell reports of a possible increase in the headline policy rate after the revival of the IMF programme. The bank is unlikely to jack up borrowing costs in the next few months in order to continue its support for the present growth momentum in an economy battered by Covid-19. But it will not be able to keep the lid on the rate for too long if prices continue their upward trajectory. The eight-month CPI for July-February stands at 8.3pc, which is well within the annualised inflation forecast of 7pc-9pc for the ongoing fiscal year though. Numbers indicate that the gap between the prices of goods and services consumed in the rural and urban areas is closing rapidly because of a faster increase in the food inflation rate in urban areas.

Even though headline inflation has eased this fiscal year as compared to the previous year, the government’s inept policy response and inaction as underscored by the rising prices of essentials has compounded the misery of low-middle-income people. PBS data shows the spike in electricity tariff and food commodities helped push up the inflation rate last month, reversing the downward trend in consumer prices. Food inflation has been in double digits for some time now and the government’s failure to reform the energy sector means a steep increase in power and gas prices every few months, punishing middle-income households that are already struggling to cope with the pandemic’s impact on their lives and livelihoods. Rising prices are not only taxing pockets and patience; they are also eroding the political capital of the current set-up as evidenced in the recent by-elections.

Published in Dawn, March 3rd, 2021