Inflationary pressures ease slightly

Data released by the Statistics Division reveals a deceleration of inflationary pressures - from November's Consumer Price Index of 24.68 percent to December's 23.34 percent. This decline is attributed to a rise in benchmark interest rates by the State Bank of Pakistan and an easing of food prices in the domestic market.
While the decline is small, yet its impact on the poor will be considerable given that a large chunk of the income of poor households is earmarked for the purchase of food. Economists, however, argue that this slight decline cannot be attributed to government policies.
The State Bank decision to raise the benchmark interest rates was the outcome of the government and International Monetary Fund parleys held in the third week of October in Dubai, or so they maintain with a degree of credibility.
The resulting agreement, as enshrined in the Letter of Intent submitted by the government to the Fund to access the 7.6 billion dollar Stand-By Arrangement indicated, that the first three rounds of monetary policy measures undertaken by the State Bank - commencing 1 August 2007 and ending 23 May, 2008 - were inadequate to neutralise the monetary overhang.
Further measures required by the State Bank included the rise in benchmark interest rates. With respect to a decline in the domestic food prices it is relevant to note that international commodity prices, that had peaked in the middle of last year leading to riots in several cities of the world, have eased, a fact that has impacted on the Pakistani market.
Be that as it may, it is relevant to point out that in Pakistan cartelisation as well as smuggling to neighbouring countries has accounted for shortages in the past, artificial or otherwise, and the consequent rise in prices. The government of the day traditionally dealt with this issue through strengthening the stocks with imports in the short run and through manipulating the area under production of a particular crop by reducing input costs in the long term.
Yet our governments, past and present, have desisted and continue to desist from breaking the hold, cartels have on our commodity prices. There is therefore an urgent need to strengthen and empower the Competition Commission of Pakistan to deal with cases of cartels promptly and strictly. Smuggling, however, will continue as long as the price of any commodity is cheaper than that in neighbouring countries. Better policing given our large porous borders with Afghanistan and India has not proved effective.
The government must focus on ensuring that smuggling is no longer a profitable activity by ensuring, that food prices in Pakistan are comparable to those prevalent in its neighbouring countries. It is also relevant to point out that the recent statement by the Advisor to the Prime Minister on Finance that the government has retired over 90 billion rupees of its debt to the State Bank must have had some salutary effect on inflation.
But that retirement has been at the cost of keeping domestic oil and product prices higher than in the international market - which is a highly inflationary policy given that the transport costs are a major portion of the kitchen budget of the poor. There is therefore a need for the government to formulate a more viable and focused anti-inflationary policy instead of relying on the IMF conditionalities to deal with the problem.