Pakistan has been stuck in a severe inflation/currency devaluation spiral for some years, but the situation has now reached a new low. In terms of economics, the comparatively high consumer inflation is fueled by rupee depreciation, which in turn fuels higher domestic inflation — a classic catch-22 for fiscal policymakers. The rupee’s depreciation versus the dollar, while beneficial for exports, is adding to inflationary pressures as the impact of imported inflation grows. Even if global energy prices remain unchanged, a modest loss of the local currency against the US dollar can drive headline inflation higher. The increasing worldwide commodity and energy markets are significantly contributing to Pakistan’s Consumer Price Index (CPI)-based inflation. In a recent study, the finance ministry admitted that rising global commodity prices and a significant currency depreciation are exacerbating the country’s inflation predicament. In fact, the rupee’s devaluation – both against the US dollar and against the currencies of Pakistan’s main trading partners on a trade-weighted basis – reflects the country’s inflation disparity with its main trading partners. In the short term, the country’s economic managers can strive to break the vicious cycle by enacting restrictive fiscal and monetary policies, as well as market-confidence-building measures. In May 2022, CPI-based inflation reached a 28-month high of 13.8 percent, the highest level since January 2020. Inflation averaged 11.29 percent in the first eleven months of current fiscal year (July-May), compared to 8.83 percent in the same time the previous fiscal year. The Sensitive Price Index is at 14.1%, while the Wholesale Price Index is at 29.6%, implying that harsher times are on the way if policymakers can’t figure out how to rein in this wild inflation. When evaluating inflationary pressures, there are certain intriguing characteristics that must be thoroughly studied in order to establish facts. According to data from the Pakistan Bureau of Statistics, the average price of wheat flour in Lahore was roughly Rs1,082/20kg, while it was Rs1,288/20kg in Islamabad — a first-time disparity of Rs206/20kg.
Electricity rates were 15.5 percent lower in May 2022 than in April 2022, and 11.8 percent lower than in the same month the previous year. The PBS utilised minimum and maximum wheat flour prices of Rs980/20kg for all cities in Punjab except Rawalpindi, where the minimum and maximum were the same but the highest was Rs1,352/20kg, a difference of Rs372 within Rawalpindi’s jurisdiction. Wheat flour prices in Punjab ranged from Rs1,300 to Rs1,400/20kg in May 12 and other weeks used to calculate SPI.
According to the price data obtained by the PBS, the price dropped by Rs320 plus per bag in a couple of weeks. These occurrences necessitate a careful inquiry to determine the true situation on the ground.
Inflation is expected to become considerably more difficult as a result of the government’s decision to eliminate unpaid fuel and energy subsidies.
This leaves the economic geniuses with little choice but to arrange well-defined targeted subsidies to protect the most vulnerable people against the most destructive price shocks in history.
Inflation averaged 11.29 percent in the first eleven months of current fiscal year (July-May), compared to 8.83 percent in the same time the previous fiscal year.
