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PR Short Notes


Photo Source: Dawn

Pakistan Reader# 204, 15 September 2021

Pakistan's inflation problem and the rising food prices



Amid the constant inflation, there is no relaxation from the government on rising food prices

Amid the constant inflation, there is no relaxation from the government on rising food prices 

Ankit Singh
PhD Scholar, School of Conflict and Security Studies, NIAS

On 8 September, the Pakistan Bureau of Statistics released a Monthly review on price indices. As per the report the Consumer Price Index (CPI)-based inflation was recorded at 8.4per cent on a year-on-year basis in August 2021, compared to 8.41per cent in July 2021 and 8.21per cent in August 2020. Other than CPI, wholesale price index (WPI), inflation in rural areas have also increased essentially in food categories. The Core inflation - calculated by excluding food and energy items - dropped to 6.3per cent in urban areas in August reported the national data collecting agency. 

Background of the report  
As per the weekly sensitive price indicator (SPI) report by Pakistan Bureau of Statistics (PBS), from the 2 September to 9 September, the price of essential items like eggs, wheat, pulse masoor, washing soap, vegetable ghee, onion and chicken has increased in continuation with previous monthly trends.  Let us take the example of chicken, over a year the price of chicken as of 10 September 2020 was PKR 154.80 per kg while this year on 9 September the price of chicken broiler per kg stands at PKR 214.47. Looking at the net increase over two weeks from 26 August 2021 to 9 September 2021 the price of chicken broiler per kg has jumped increased by PKR 38.  

Going into the technicality of the report, the SPI for the current week ended on 09th September, recorded an increase of 1.37per cent with most of the items increased. The year on year trend depicts an increase of 12.53per cent with most of the items increased, mainly, LPG (50.57per cent), Chicken (50.23per cent), Electricity for Q1 (46.55per cent), Vegetable Ghee 1 Kg (38.88per cent), Mustard Oil (36.98per cent), Vegetable Ghee 2.5Kg (36.47per cent), Chilies Powder (35.71per cent), Cooking Oil filter (34.98per cent), Gents Sandal (33.37per cent), Eggs (28.63per cent), Gents Sponge Chappal (25.13per cent) and Washing Soap (21.47per cent), while a major decrease was observed in the prices of Potatoes (28.01per cent), Tomatoes (27.42per cent) and Pulse Moong (20.39per cent).  

Observable explanations 
This is in continuation with the policy of the current government to shore up revenue targets and new tax announced in the latest budget to reduce the fiscal deficits and keep a progressive track with growth in revenues. Another interesting reason is the external economic projection especially to set the agenda with the upcoming IMF staff-level meeting and smoothen the process of release of the sixth tranche of the USD 6 billion extended fund facility (EFF). By this month-end the board of directors to conduct its sixth review of the Pakistan program. “On September 29, our technical team will begin virtual negotiations with the technical team of the International Monetary Fund,” Finance Minister Shaukat Tarin said. 

The IMF in its program has always maintained that the tax base needs to be increased to boost revenue and market-driven exchange rate mechanism. It is the massive fiscal and external financing gaps, which are driving both inflation and exchange rate depreciation. There are important issues like critical social indicators, expanding military budgets, loss-making public-sector enterprises and subsidies given to farmers which cannot be adjusted so the revenue shortfall is done through higher food prices this time.  

There is another controversy, whether the current inflation especially in food commodities is artificial or real? A report by Oxfam has analyzed how the price of wheat flour, which is the country’s staple food continues to skyrocket amidst government and international efforts to stabilize commodity prices which is to remain in sync with international standard prices to remain competitive and relevant in trade market. The government also imports essential food commodities like wheat and sugar, subsequently the higher price differential in the international market is passed on to the consumers and the governments over time has continued with subsidies and support prices but sucking in more through the artificial standardized prices.  The situation is worsened by the calibration of micro indicators through fiscal and monetary policies which had started way back when army general Ayub Khan took over the country’s leadership politically.  

References 
Executive Summary, Sensitive Price Indicator (Spi) for the week ended on 09.09.2021,” Pakistan Bureau of Statistics, 14 September 2021 
Monthly Review on Price Indices, August, 2021 (Base Year 2015-16),” Pakistan Bureau of Statistics, 14 September 2021 
Stocker, Farhana Faruqi, “Food Crisis in Pakistan: Real or artificial?,” Oxfam Policy and Practise, 1 July 2008
Nadir Cheema, “IMF negotiations,” Dawn, 2 May 2019
Sufyan Khalid, “IMF negotiations start with the sixth installment at the end of the month : Tarin,” Lahore Herald, 12 September 2021
Amjad Mahmood, “Agriculture survives on subsidies,” Dawn, 27 May 2019

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