Thursday, August 4, 2011

Pakistan's High food inflation

The Frontier Post
Food inflation in Pakistan is picking up as food prices up by over 17.58 per cent in July making eatables dearer for consumers, heaping more economic misery on the people.This is the highest food inflation in South Asia region; rather the world, and is because of frequent increase in the prices of petroleum goods and electricity tariff in addition to the government’s failure in checking the spiral in the prices of all essential commodities. This happened before and during the holy month of Ramadan and at the same time, the government itself added to the economic misery of the hapless teeming millions. First the sharp rise of petroleum products and now a repressive hike in electricity tariff by Rs1.04 a unit which comes to around 20 per cent of fuel cost being incurred by WAPDA’s nine distribution companies and consumers will have to bear additional cost during the current billing month. The National Electricity Regulatory Authority allowed the increase on all generations including hydropower resources whose production cost is about 17 paisa a unit. The latest Federal Bureau of Statistics report says the current exorbitant food inflation is driven by oil prices, the headline inflation, based on consumer price index, rose by 13.77 per cent in July alone with an overall impact of 17.58 per cent since the beginning of the new fiscal year. This means that food inflation went up by about another 4 per cent only in the first three days of August; this is atrocious and speaks volumes of the country’s inept economic managers who have time and again said they want the inflation to come down to a single digit level. The government has projected an inflation target of 12 per cent for the current fiscal year which seems to be missed because of rising food and fuel prices. A major factor in the hyper inflation in the country is the failure of provincial governments to ensure an improved supply of food to small towns and villages. Likewise, provinces have not so far established committees to review food prices. In the past such committees were headed by chief ministers under a law which still exists on statute books only to be ignored. Now that the devolution plan has seen the transfer of the subjects for provinces to govern, it now appears that they were and still not prepared to take up the responsibility. One glaring example of the lack of preparedness is that except for Sindh, no other province has demonstrated the ability and will to collect taxes and add to provincial revenues. On the other hand, the central bank has decreased its discount rate to 13.5 per cent from 14 per cent assuming that headline inflation would not exceed 12pc and second, government would restrict its domestic borrowings for financing fiscal deficit. But contrary to this, the non-food and non-energy core inflation entered a double digit to 10.7 per cent in July from 10.3 per cent last year making it harder for the central bank to further bring down the interest rate in the next monetary policy review.The surge in food prices could possibly lead to social unrest in case government did not take corrective measures to arrest the perpetual rise in prices.

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