Inflation reaches to 12.7 percent in November: 'need underscored for reducing cost of doing business

The Businessmen Panel (BMP) of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has stressed the need for reducing cost of doing business, besides evolving a new price control mechanism, as huge taxation, rising oil prices and constant jump in electricity and gas tariffs have lifted the inflation to nine-year high level to 12.7 percent in November.

BMP Chairman Mian Anjum Nisar warned the authorities that inflation above 6 percent can hurt economic growth and a careful policy is required to keep it in control.

He said that the pace of inflation is skyrocketing at a time when the economic activity is slowing down, which has made it difficult for the people to cope with the situation, as country is facing a situation of stagflation because economic growth rate is slow while unemployment and prices of goods and services are high.

He said the present situation indicates the complete breakdown of administration in all federal and provincial governments besides highlighting the impacts of unprecedented taxation in this fiscal year of 2019-20.

It has now proved that the central bank's tight monetary policy has no effect on the prices of food items that are increasing because of supply shocks, increase in sales tax rates and monopoly of few businesses.

The high interest rates have affected the industrial expansion while also hurting the economic growth prospects, he added.

The most serious threat to the economy in the current fiscal year has become inflation which has touched the highest level in eight years and eight months. Last time, inflation had been recorded at 13 percent in March 2011, he said. The International Monetary Fund's financial assistance has brought a fresh wave of price-hike, as inflation is already hitting due to continuous raise in oil prices and depreciation of local currency. The IMF loan has devastating effects on the economy, as with more taxes and increased rates of utilities, cost of production has increased manifolds, rendering Pakistani exports uncompetitive in the global market, he added.

Mian Anjum Nisar said low inflation helps economic agents to predict outcome of their economic decisions with fair level of certainty. Especially, producers follow their plans for business expansion with more confidence; and new investment is undertaken in the expectation of predictable returns, he maintained. There is a consensus that a low inflation rate helps economic activities, while high inflation hurts economic growth. The high inflation environment affects decision making of all economic agents in economy, like investors, savers, consumers and producers through uncertainty about the expected payoffs from their decisions, he added.

Moreover, a persistently high inflation also causes erosion of the value of the local currency in terms of foreign currencies. Such uncertainties, in turn, have adverse implications for economic activities, he added.