While companies and industries in the urban space are perched between multi-decade highs of inflation and unemployment, Pakistan’s rural sector is caught in its own tighter and stickier brand of inflation with no relief in sight.
According to the latest data released by the Pakistan Bureau of Statistics, inflation has jumped to 36.4 percent on a YoY basis against a 35.4 percent increase for the previous month. On a monthly basis, a 2.4 percent increase has been registered compared to March 2023.
The alarming sign is food inflation with most essential commodities witnessing an increase of 46.8 percent in urban areas with the worst effect felt in rural settings where the number has touched 52.2 percent.
The yearly rise in inflation is reportedly the highest since the data collection started in 1965, but the reason is a no-brainer.
The record currency depreciation, the pandemic hangover, the political instability, the IMF program in limbo, rising food and energy prices, and slow recovery from the flood damages are among the many reasons driving this increase. The Finance Ministry is expecting a further rise in the months to come.
The country does not have an IMF Programme since Nov 2022 and the negotiations are stalled since February. Despite the confirmations of financial support from Saudi Arabia and UAE, the staff-level agreement is yet to be signed which will release $1.1 billion that’s been delayed for months.
With IMF and Finance Ministry officials blaming each other for the delay, IMF is awaiting commitments from the World Bank, Asian Development Bank, and commercial banks. Meanwhile, the State Bank of Pakistan has jacked up the interest rates to curb inflation with a 300 points increase in March and a 100 points rise in April. With skyrocketing inflation, another rate hike is expected at next month’s scheduled meeting of the SBP Monetary Policy Committee (MPC).
Food Inflation
Wheat which is the staple food across the country registered the third-biggest increase of 103 percent in prices on a YoY basis. Apart from macros, the primary driver behind this was the historically devastating floods damaging 8.3 million acres of cropland.
The delayed sowing, the unchecked smuggling and hoarding, the record hike in fertilizer prices due to energy shortage, and the super tax contributed to this increase. Despite the record bumper crop, the shortage is still fueling the deepening flour crisis in parts of the country due to unaddressed supply chain issues and excess government footprint in the sector.
Eggs and chicken prices increase by 100 percent and 43 percent respectively with Govt refusal to open LCs for the hundreds of containers of soybean meal stuck at ports which makes up the major portion of poultry feed. Rice which is Pakistan’s second-biggest crop after wheat and brings 2 million tons to the national food requirement faced an 87 percent increase in prices with annual production declining by 30 percent in the face of devastating floods and continuing exports.
CPI hike in the prices of pulses is found primarily due to the rupee depreciation and LCs being refused by SBP as Pakistan imports most of its consumptions of pulses.
Tea and Tobacco
Meanwhile, the biggest increase among the food group is registered by Cigarettes and Tea with 160 percent and 108 percent respectively. Govt raised the Federal Excise Duty (FED) duty on cigarettes by up to 146 percent in the mini-budget passed in February this year. The increase translates from Rs. 3,000 to Rs. 5,050 for less expensive brands to Rs. 10,000 to Rs. 16,500 for the top brands per 1,000 cigarettes.
Tobacco has always been the easy prey to boost revenue by finance hawks as no one is going to complain about tobacco, being an unhealthy luxury.
The government has also left a loophole with a disproportionate increase in the minimum sale price that puts foreign brands at a disadvantage. Pakistan is the biggest tea importer in the world as unlike tobacco, good quality tea doesn’t grow here at all despite the honest efforts by the Ministry of Food Security and Research.
Despite tea prices decreasing by nearly 4 percent in the international market since 2023 began, the domestic market is reporting an increase in prices. In the face of a dollar shortage, the Govt has been prioritizing Wheat and Petroleum imports and unfortunately, tea comes far lower on that ladder with hundreds of containers awaiting at ports.
While the major factors like after effects of a pandemic and last year’s floods were unpredictable for our Darwinian Govt officials, the unnecessary political instability and unchecked cross-border smuggling of key commodities were avoidable. The government also needs to address the agriculture input prices in the long term to keep in check the inflation of the commodities we produce in abundance locally.
The wheat supply chains need to be fixed and government should immediately reduce its intervention to the minimum and let’s market decide its course to avoid volatility.
Source: Pro Pakistani