Pakistan PM's efforts to rein in inflation too little, too late
The richest in Pakistan devote about 30 per cent of their incomes towards everyday things like food.
Imagine my relief the other night, just when I thought that thoughts of out of control prices and over-due bills would keep me up all over again, to read in the news that Pakistan's prime minister Imran Khan had, effectively, ordered an end to inflation.
"PM Imran issues orders to control inflation, summons all chief ministers for consultation," read the most prominent local English daily Dawn's lead headline. So, if these years in the field have taught me anything, the prime minister will direct the chief ministers to 'control inflation', who - going by the chain of command - will then summon the most able chief secretaries, etc. and then the bureaucracy will take charge of reducing prices. And that'll be that, won't it?
Yet, relieved as I was, sleep still wouldn't come. Perhaps because I'd read earlier in the day, in the local English daily Express Tribune I think, that the World Bank, no less, was warning of chronic economic stagnation amid big deficits and low revenue. That didn't make the finance minister look too good, since he'd claimed just the previous day that both deficits, current and capital account, were finally under "complete control".
The report also noted that while much of South Asia was indeed growing slower than last year because of the trade war squeeze and what not, there's still a good chance for the region as a whole to rebound next year. But not Pakistan, unfortunately, since this Islamic Republic's GDP growth is projected to be the slowest in South Asia for at least another fiscal year.
That, not very surprisingly, is because we've had the largest regional drop in industrial production, sharpest rise in food inflation, lowest growth in exports, highest policy rate and by far the worst performing equity market over the last year. Sums it up rather nicely, doesn't it?
Anyhow, Monday's cabinet meeting decided, Dawn's story went on to explain, to activate price committees and "elements responsible for fluctuation of prices and hoarding will be dealt with strictly." We'll come back to the "dealt with strictly" part shortly.
It could be that Imran - or one of his many advisors - had read noted economist and former federal minister Dr Hafiz Pasha's oped piece in another respected English local daily, Business Recorder, just a couple of days ago. The good professor explained, with concern, how food inflation was simply out of control. From 1.4 per cent in September 2018 it rose to 14.3 per cent year-on-year by September 2019. The number rounds off to 15 per cent if you consider the government's new way of calculating inflation. And much of this surprising jump seems to have come in the last quarter because until June 2019 headline inflation clocked in at 8.2 per cent; still quite on the high side but gives far more breathing space than 15 per cent. Also, last year this time it was 22 per cent of overall inflation, now it's about 40 per cent.
That's not all. The richest in Pakistan devote about 30 per cent of their incomes towards everyday things like food, but the poorest lot have to burn a lot more of their so-called disposable incomes in exchange for nutrition; a good 50 per cent actually. So, much more expensive food means not only more chunks of people dropping below the poverty line, but also less calories going into the lower income groups just when the World Health Organization has been crying hoarse about most children in the country being born stunted.
Ironically, when the PM was delivering landmark speeches at the UN and admiring the Chinese for lifting millions of people out of poverty, his government's policies back home were turning the wheel in the opposite direction.
This particular bout of inflation, in Pakistan, isn't because of the economy over-heating. And the State Bank of Pakistan (SBP) has not jacked up interest rates, chocking money supply, because excess demand needs to be controlled. Rather our inflation is of the old cost-push variety, where the government has typically resorted to arbitrary taxation to control runaway deficits. Prices are out of control, then, because of supply-side, not demand-side, issues. So you can do what you like with the benchmark policy rate yet prices will be just as unresponsive.
And that, in a nutshell, is why anybody who's selling anything has raised end prices; food items being no exception. The only difference is that while the poorer lot can do without most things when prices are high, they still pretty much need food. Now, coming back to the "dealt with strictly" part. What do you do to a merchant who simply transferred rising prices all the way from his input costs to his market product? And what formula do price committees use to punish price fluctuation and hoarding? And what, God forbid, if it turns out that the government itself was responsible for the uncertainty and the unprecedented price hike?
Most likely all the fluctuators and hoarders will just thank the PM for finally ordering an end to inflation, because once their input prices shrink in submission and obedience, no doubt food and water and just about everything else will become more affordable as well.
Shahab Jafry is a senior journalist based in Lahore, Pakistan