At the end of the current financial year on June 30, inflation would rise to eight per cent instead of earlier officially projected figure of 6.5 per cent, while food inflation would be 10.5 per cent. This trend would continue as enhanced wages and pensions go into the market together with increase in wages of industrial workers.
Factory owners would also increase prices of their products as they pay higher wages to their workers, as practised in the past.
A peculiar feature of our economy is that agricultural prices go up at a time when its production is at its peak—five per cent increase in this fiscal, with a forecast of 4.8 per cent in the next. Normally agricultural prices should have come down with increase in output, but in our country it is the other way round: the higher the output, the higher the prices as growers, middlemen and salesmen go into operation.
But the adviser to the prime minister on finance, Dr Salman Shah, says that prices of perishable items like vegetables and fruits have gone up far more. For example, tomato is selling at Rs80 per kilo.
He says that while the consumer price inflation is eight per cent, the food inflation rose to 10 per cent, but international food prices had gone up by 11 per cent. According to the Economist of London the food inflation in terms of dollar within a year is 13.5 per cent, which is pretty high.
The core inflation in Pakistan, excluding food and oil, was five per cent, while the official target is six per cent. But in a poor country with large families and few wage earners, the food inflation matters very much and so also the price of energy in various forms. Hence the low figure of core inflation has no significance at all. That may be more applicable to the US and Europe with their small families and greater number of wage earners.
Tackling inflation which involves many players, as Dr Salman Shah says, is a difficult task and they have to act together.
As far as Prime Minister Shaukat Aziz is concerned, his pet solution is having recourse to the utility stores, increasing their number as well as the number of items they sell. It is more like privatisation in the reverse. He now wants 500 more utility stores which may increase their number to about 1,500. He also wants them to sell medicines, a tricky trade which has to be handled with caution. He also wants the utility stores to sell sugar, rice, and pulses at concessional rates. But the utility stores are a weak mechanism to fight the monster of inflation, and are too few compared to the vast population.
He had earlier spoken of expanding the supply chain, doubling the number of sabzi mandis in major cities and opening chains of retail shops with external assistance. What we have got instead is the Makro wholesale centre which is useful to the affluent wholesale shopper and not the average shopper. India, on the other hand, is going for retail chains in a big way with major Indian business houses like the Reliance playing their part. India wants to raise the capacity of such stores to 20 per cent of the overall retail market. The Pakistani market needs retail cash-n-carry chains in large numbers, with or without foreign assistance so that the ‘middlemen’ will not make far more profit than the growers and the buyers.
Now everything works against the domestic consumer. Added to the domestic food inflation is the impact of the imported inflation. We have been a victim of imported inflation since 1973 when the first oil shock came. We have now to pay peak prices for imported milk powder and palm oil.
Earlier, there was the hope that high import duty on palm oil may be reduced. But since then there has been no indications of such reduction. The Malaysian government had said Pakistan had agreed to reduce duty on palm oil to facilitate the signing of a FTA between the two countries. And now with the world oil price around $66 per barrel and the uncertainties about oil supply, Pakistanis will have to pay a heavy price for the oil as long as it does not attain autarky in oil production.
Adding to the cost of production in the industrial sector is the frequent electricity failure in factories.
The president and the prime minister want to do everything possible for adequate supply of essential items to the people particularly food items at reasonable prices. But they find no way out. Hence their promises are not very credible.
The basic problem here is the quest for very high profits, be that in the corporate sector or in a small shop, the exporters too seek large profits and opt for various shortcuts that hurt their trade. The small shopkeepers’ mentality prevails all through trade and industry in many areas instead of the healthy corporate philosophy being developed and sustained.