Real drivers of Pakistan’s price trends identified


Real drivers of Pakistan’s price trends identified

ISLAMABAD: Some domestic and external factors are major drivers of rising inflation in Pakistan but there is little possibility to provide solace to the people of Pakistan over the next six-month (Jan-June) period of the current fiscal year 2021-22.

The drivers of increased inflationary pressures included administrative energy prices, devaluation of exchange rate, lack of agricultural productivity besides increased global prices of food, commodities and energy pushed up the price hike manifold in the domestic market of Pakistan. The fuel price adjustment in electricity bills resulted in a spike in the Sensitive Price Index (SPI) for the week ended on December 16, 2021. The CPI-based inflation is expected to remain double-digit in the remaining months of the current fiscal year 2021-22.

“Some serious policy prescription is required to tame the inflationary pressures as the government is all set to withdraw the GST exemptions through mini-budget when CPI-based inflation has already touched 11.5 percent for November 2021, SPI inflation touched 19.5 percent on a weekly basis and Wholesale Price Index peaked to 27 percent for November 2021,” top economic experts warned while talking to The News here on Sunday.

Official data showed that the weighted contribution of the food group in the overall urban Consumer Price Index (CPI) inflation increased to 38.6 percent during November 2021 from 37.9 percent in the previous month. It was 68.7 percent during the corresponding month of the last year.

The weighted contribution of the non-food group decreased to 61.4 percent in November 2021 from 62.1 percent in the previous month. Weighted Contribution of non-food was 31.3 percent during the corresponding month of last year. For the rural basket, the weighted contribution of the food group in the overall rural CPI inflation stood at 39.2 percent during November 2021 from 40.8 percent in the previous month. It was 72.2 percent during the corresponding month of the last year. The weighted contribution of the non-food group increased to 60.8 percent in November 2021 from 59.2 percent in the previous month. The weighted contribution of the non-food group was 27.8 percent during the corresponding month of last year.

On the SPI front ended on December 16, 2021, the year on year trend depicts increase of 19.49%, in electricity for Q1 (83.95%), LPG (65.26%), cooking oil 5 litre (60.37%), vegetable ghee 1 kg (57.56%), vegetable ghee 2.5 Kg (55.62%), Mustard Oil (55.60%), Washing Soap (45.75%), Petrol (35.42%), chilies powdered (32.24%), pulse Masoor (29.52%) and diesel (26.72%), while major decrease observed in the prices of onions (28.72%), pulse Moong (24.87%), chicken (16.09%), tomatoes (14.76%), potatoes (14.58%) and eggs (9.86%).

When contacted, former finance minister Dr Hafiz A Pasha said that the government must move ahead with the imposition of income tax levy of 1 to 2 percent as was done in the past on affluent individuals and companies earning lofty profits instead of imposing 17 percent GST on agriculture inputs such as seeds, ginning cotton, etc, raw material for medicines at the time of Covid-19 pandemic, all kinds of machinery, stationery and many other items. He criticized the IMF and said that the tax revenues could be generated through an income support levy instead of taking steps that would further fuel inflationary pressures. The abolition of GST exemptions would push up the inflationary pressure in the country, he added.

When contacted, Dr Khaqan Najeeb, former Adviser, Ministry of Finance, said both domestic and external factors are drivers of ongoing hike in prices.

While talking to The News, he said that global supply shocks have a meaningful impact on Pakistan’s inflation as imports of goods and services has risen to about 26% of GDP. The country runs on imported petroleum products, edible oil, machinery, food, vehicles, mobiles, and industrial raw materials. Rising international prices and a declining rupee have magnified the price hike for Pakistanis.

Dr Khaqan clarified there is substantive demand-pull inflation and policy design has much to do with it. Higher cash distribution through income support programs, concessionary lending and higher-income flow to rural areas due to higher administered commodity prices have fuelled higher demand in Pakistan.

Policymakers cannot ignore that a factor pushing inflation is the expansionary FY22 budget with a whopping 20pc rise in current expenditure to Rs7.5 trillion versus Rs6.26 trillion spent in FY21.

He emphasized that the low productivity of agriculture has constrained supply, making the country a high food importer. In just five months of FY22, $4.02 billion in food items have been imported, which is 32.9pc higher compared to the last year. Weak agriculture markets result in higher wholesale prices. This is fuelling cost-push inflation.

He further said we must not forget the saga of regulated prices of energy. This has led to the passing of higher prices of energy (electricity charges for Q1 83.95pc higher on 17.12.21 compared to 16.12.20 partly due to prevalent inefficiencies in a state-dominated system from production to transmission and distribution.

Dr. Khaqan concluded that these are real drivers of Pakistan’s price trends and need a holistic approach spanning years to solve.



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