Inflation: Come Again

It was generally believed that the previous elections would play a vital role in getting Pakistan out of the financial confusion in which it had been for the last 7-8 years. The PPPP was expected to rotate the trends in poverty, rising suicide tolls, illiteracy and mainly importantly, price rises.

In order to give some aid to the poor section, the government announced the Benazir Income Support Program (BISP) soon after coming to control. With increasing price rises, the Rs. 1,000 package is nothing but a drop in the sea. Inflation, that has taken the centre stage in Pakistan’s financial and political disorder, is going through the roof. Factors, like rising power prices, increased expenses of production, overseas exchange holding by main food importing countries and a forbid on exports of certain substance by some countries etc, contributed to a enormous rise in prices of foodstuff items.

An increase in prices of some crop forced the people to alternate them with other substance, like wheat and rice. This rise in order for wheat and rice pushed their prices upward around the world. Even in the US, inflation increased by 25 per cent during 2000-2008, which was essentially due to a boost in the prices of maize, wheat and rice by 47 per cent, 26 per cent and 25 per cent in that order.

The government claims that it has been attractive measures to keep prices of necessary merchandise under control. These measures include an open-minded import rule for food items, including zero rating of imports of these commodities. In order to give help to low and unchanging income groups, the government has been selling flour and sugar through Utility Stores Corporation at much lower prices than the market. In order to supplement supplies of essential commodities in the shortest possible time and at lower freight charges, the government has also permitted the import of a variety of items through ground route from adjoining countries.

But, all these are secondary measures. Evils, like inflation and poverty, cannot be eliminated by applying secondary measures straight; they require tactical planning. Selling basic food items at USC is not a good and long term solution.

The government additional claims that the position of the Trading Corporation of Pakistan (TCP) has been enhanced; The TCP is energetic in importing sugar from approximately the world to construct up tactical assets, with a vision to carry on selling sugar at less than the market price from side to side the USC. The TCP has also been asked to import pulses to meet home expenditure supplies and stabilize their prices in the country. The TCP should arrangement the procedure by which we can have utmost production at an inferior cost at home, as an alternative of formulating plans to import the items. Domestic productions at a lower cost of production will not merely make the availability of merchandise wider, but the collective supply will also increase and domestic industry will grow.
The inflation in Pakistan is comparatively high, as compared to its competitors and trading associates. In Pakistan, the government monitors price trends on a weekly basis at high level forums. Its main focus is on prices of essentials of regular use, carrying high weight for low-income people. The sensitive price indicator (SPI), currently consisting of 53 goods, originally designed in the seventies, is worn for cost monitoring. The appraisal enables the government to get fleeting measures, like imports of shortfall commodities, change in tariff rates, anti-hoarding administrative steps, and increased interference in the marketing system through Utility Stores, bank finances etc. In the short to medium term outlook, monetary and fiscal policies are used to achieve price stability.

Official documents demonstrate complacency over the obtainable price rises, offering explanations that there is food inflation all over the world and prices are moderately superior in India. This is not a believable argument nor politically conventional. This cannot relieve the government of its basic duty of taming inflation.

Every year, rising adjustments in utility tariffs push up transport charges and the price of production in the agriculture and industrial sectors. This is approved on to the consumer. Likewise, the almost yearly augment in real or nominal hold prices for crops, similar to wheat, sugar etc, and have a inclusive effect – direct or sympathetic- on the universal price level.

Secondly, the fiscal policy is expansionary by any measure. This has been adopted under some other considerations. The overall fiscal shortfall is reserved at a high level of around 4 per cent. In spite of some increases, tax revenues are not sufficient to match budgetary requirements. The government’s dependence on borrowing for financing the deficit has continued to rise and the trend is unlikely to stop even in the years to come. This is a steady source of increasing aggregate demand, eventually pushing up the general price level.

Thirdly, the monetary policy is constrained to toe an exacting line due to administrative and other compulsions. A central bank usually follows a monetary policy, principally meant at price and swap stability. It cautions the fiscal managers to perform. Moreover, there is a need of a selective domestic production augmenting policy. The key weight on the general price line comes from food prices. The food inflation this year is predictable to be in double digits. This is due to tiny production of vegetables and pulses. The pulses difficulty has been reliable for the last 20 years. It can be solved by developing a suitable strategy, supported with fiscal and monetary incentives. In the same way, almost yearly, we are faced with sugar shortages. A warning system and growing buffer stocks of essential commodities is needed.