Inflation remains a source of serious concern to the Khan administration and in the last weekly National Price Monitoring Committee (NPMC) meeting, headed by Dr Hafeez Sheikh in his capacity as the Minister of Finance, specific directives were issued to control the prices of tomatoes and eggs which witnessed a rise of 9.5 percent and 3.14 percent, respectively, in the week ending 24 December compared to the week ending 17 December.
Sensitive Price Index (SPI) is calculated on a weekly basis by the Pakistan Bureau of Statistics (PBS), and includes 51 essential commodities from 50 markets in 17 cities. It is calculated for four weeks of the month while at the end of the month the consumer price index (CPI) is calculated (monthly basis) comprising 487 items – giving the average of urban (356 items in 35 cities and 68 markets) and rural (244 items in 27 markets) rates.
NPMC held last week appropriately picked up on tomatoes and eggs, the commodities that witnessed the largest increase in prices in one week with Dr Sheikh reportedly expressing his concern at the rise in the price of eggs. A dozen eggs were sold at 128.48 during the week ending 26 December 2019, 199.59 in the week ending 17 December 2020 and 205.85 in the week ending 24 December 2020 – or eggs rose in price by a whopping 60.2 percent when compared to last year’s price. Due to lack of corroborating data one may assume that supply and demand factor determines the price of eggs in the country with demand for eggs rising in upcountry areas as the winter sets in.
Tomatoes per kg were sold at 105.71 in the comparable week in 2019, declined to 87.28 in the week ending 17 December 2020 and rose to 95.57 in the week ending 24 December 2020. Thus in comparison to 2019 tomatoes actually declined in price by 9.59 percent. In this context it is relevant to note that in October 2020 the government decided to import tomatoes from Iran due to its high price in Pakistan and it is unclear whether the consignment has arrived and if so at what price though one cannot ignore the impact of nonmarket forces (including hoarding) on prices though in the case of a perishable commodity the capacity to hoard for long periods is severely limited. The State Bank of Pakistan (SBP) website does not provide the cost of imported tomatoes separately though in all probability they are included in all other food items on which the country spent 765,989,000 dollars July-November 2021 against 639,072,000 in the corresponding period of the year before – or a rise of 20 percent.
Wheat flour was sold at 908.99 per 20kgs in the week ending 26 December 2019, 966.47 per 20kgs in the week ending 17 December 2020 and 972 in the week ending 24 December 2020 as per the SPI. However, there are reports that the price in the market is higher while the Utility Stores Corporation are selling the commodity at the controlled rate but have few buyers as the quality is said to be not fit for human consumption. Wheat unmilled accounted for imports of 229,015,000 dollars in July-November 2021 against zero in the comparable period of the previous year.
Sugar refined rose from 81.093 rupees per kg in the week ending 17 December 2020 to 82.06 in the week ending 24 December 2020 against 71.68 in the week ending 26 December 2019. Imports of the commodity cost the country 95,790,000 dollars against only 923,000 dollars in the comparable period of the year before.
In short, as per the SBP website the government increased its imports on unmilled wheat, sugar, and other food items from 639,995,000 July-November 2019 to 1,090,701,000 in the comparable period of 2020 or by 1,026,701,500 dollars – a rise of 70.4 percent which reflects poor decision-making at the level of the federal and provincial governments. It is this aspect of pricing that needs a focus of the economic team to ensure that there is no repeat next year for the rise in the import bill by a billion dollars puts pressure on the balance of payment position and while remittances have risen to meet this additional requirement for foreign exchange yet rising reserves sourced to swap arrangements and debt equity have an impact on the value of the currency which in turn impacts on inflation.
The CPI data released on 1 January 2021 claimed a rate of 8 percent (year on year) compared to 8.3 percent the previous month and 12.6 percent in December 2019. One wonders whether this containment is due to the decisions taken at the NPMC last week or the easing of severely contractionary macro-economic policies post Covid-19 (inclusive of containment of the highly inflationary unsustainable budget deficit last year of over 9 percent projected at 7 percent this year) or the capacity of the government to contain the mafia/collusion in setting prices (for which there is no evidence) or outright data manipulation?
The recent rise in the rates of petroleum and products would also raise the pressure on prices, even of eggs due to higher transport costs – from farm to market. But what has been ignored by the Khan administration, though he has hired sector experts as his economic team leaders who should have briefed him appropriately, is the fact that the actual impact of inflation on the general public is understated because: (i) public sector employees (civilian and military) have not received any pay raise commensurate to inflation this year (though the military operates stores which provide essentials at subsidized rates); (ii) the private sector continues to flounder as growth estimates remain very low – 1.5 percent projected for last year which declined to negative 0.4 percent due to Coivid19 and to 2 percent this year which is a percentage point higher than the multilateral projections which, in turn, was projected before the Covid-19 second wave; and (iii) the reduction in revenue collection as the Prime Minister has not passed on the full impact of the petroleum prices recommended by Oil and Gas Regulatory Authority (which include estimates of unchanged revenue collection based on taxes levied). With a decline in revenue it is likely the government’s team would have to pledge other sources of revenue generation – either raising taxes on sectors which would curtail productivity further and/or privatization which appears a pipedream given the continued onslaught of Covid-19.
To conclude, inflation remains a serious political and economic challenge and one would hope that a more holistic approach to its containment is followed rather than being limited to a weekly meeting that ends with directives focused on law enforcement agencies dealing with existing market imperfections.
Copyright Business Recorder, 2021
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