The government’s monthly evaluation of pricing indexes has been released, and it supports what has long been believed: Inflation is currently at historic highs and is not showing any signs of slowing down any time soon. Inflation in the general CPI increased to 35.4% year over year in March, with rural CPI inflation roaring at 38.9% while urban CPI inflation was hovering at 33%. The SPI basket prices registered a monthly increase of 40.9%.
Given that pre-Ramadan days make up the majority of the data included in the analysis, it is likely that the numbers do not accurately reflect the intensity of the crisis as experienced by people in the last week of March, which overlaps with the first week of April. Looking at the state of our economy, it is clear that import compression has effectively eliminated imported inflation. This demonstrates unequivocally that the rupee’s ongoing decline and historically high food inflation rates are what are driving today’s high inflation rates.
Households that rely on wage earners and salaried individuals, whose real earnings have been declining for several years despite nominal raises due to rupee depreciation, are the hardest hit by economic hardship. In other words, the cost-of-living crisis gripping the lower income strata of society has taken on the proportions of a full-fledged disaster, exacerbated by the government’s inability to address it.
The disaster is unfolding against the backdrop of our government’s slow progress towards a staff-level agreement (SLA) for the restart of a stalled International Monetary Fund bailout. The jury is still out on the wisdom of implementing the fund-agreed reform measures piecemeal, dragging their feet at every step of the way but eventually conceding every single point, but only after wasting as much time as possible. It is unclear what the government hopes to achieve with this strategy other than further depreciation of the rupee, which fuels inflation.
The central bank, on the other hand, has appeared to be just as impotent as the populace, constantly falling behind the inflation curve and acting too little too late to halt the trend. The State Bank of Pakistan is anticipated to increase its policy rate by 400–500 basis points when it meets next week.
The fact that every reform step implemented to appease the fund has caused inflation does not help. The delayed rate of implementation, however, makes each of them even more inflationary. Early deal-making would have at the very least kept the rupee stable, calmed the markets, and improved the mood. Additionally, the energies freed up by such a development may have been used to boost the local economy. Nonetheless, it appears that the government is influenced by some additional factors that are invisible to the general public.
Never in the history of the nation has a political administration shown such indifference to the needs of the populace. If the prime minister believes that token gestures, such as the free wheat flour and fuel card, will help him in the case of an election, he is seriously incorrect. If anything, his coalition’s decreasing political capital may be further eroded by the disastrous free-atta scheme.
Overall, it appears that the government is unaware that time is running out to prevent a crisis in the cost of living that might potentially lead to violent unrest. We can only hope that Finance Minister Ishaq Dar and the State Bank recognise this fact as soon as possible and take action to control inflation before it becomes too late to stabilise the economy.