EDITORIAL: The Sensitive Price Index for the week ending 25 April 2024, consisting of 51 essential items collected from 50 markets in 17 cities around the country, decreased by 1.10 percent with the year-on-year increase of 26.94 percent.
Disturbingly, three observations repeatedly pointed out by Business Recorder remain relevant to this day with respect to data collection by the Pakistan Bureau of Statistics (PBS) that require urgent remedial measures.
First, the utility tariffs taken into consideration are the lowest rates, which are subsidised at the taxpayer’s expense, rather than the average, which would more appropriately reflect its impact on inflation.
Secondly, at times when inflation is high and political pressure to understate it, be it overt or covert, is significant that PBS relies on prevalent prices at Utility Stores Corporation, which are not only subsidised but on occasion due to poor quality are not in demand with the public forced to buy the items in the open market.
An example is the wheat available at cheap rates at USC last fiscal year, which was not fit for human consumption.
And finally, any attempt to understate the inflation rate is unlikely to be the cause of a feel good factor within the general public as the rise from one week to the next is over and above the week before or, in other words, a typical householder will have been subjected to a rise in prices from one week to next while his/her disposable income is unlikely to have risen in the same period.
Be that as it may, SPI declined year-on-year from 28.54 percent for the week ending 18 April 2024 to 26.94 percent for the week ending 25 April – a decline of 1.6 percent, though as per the PBS the decline was 1.10 percent.
And the expenditure group, which suffered the most from the rise in inflation was the income group earning between 22,889 rupees and 29,517 rupees between the week ending 18 April to 25 April this year: 30.74 percent week ending 25 April against 32.49 percent 18 April followed by income of between 29,518 rupees and 44,175 rupees estimated at 29.95 percent on week ending 18 April to 28.23 percent in week ending 25 April.
And ironically, those earning above 44,175 rupees suffered a positive change between the two weeks – from 25.98 percent to 24.53 percent for the week ending 25 April. Clearly, something is rotten in the state of Denmark.
The International Monetary Fund’s (IMF’s) Managing Director, during the World Economic Forum in Riyadh, acknowledged that inflation remains an issue for Pakistan; however, sadly, she and the Fund team members engaged in reaching the staff-level agreement on the second and final review of the Stand-By Arrangement failed to focus on all the factors that are contributing to inflation and which need a revisit for the next programme conditions targeted for next fiscal year on three counts: (i) IMF sponsored administrative measures that require the utility sectors to meet full cost recovery is an economically viable objective, yet it has entailed upping the rates rather than improving sectoral efficiency; (ii) reliance on raising existing taxes, including the petroleum levy, which is an indirect tax whose incidence on the poor is greater than on the rich, rather than to reform the inequitable and unfair tax structure, is responsible for an across-the-board rise in prices; and (iii) rising government borrowing from the domestic sector, which is being injected right back into the economy to fund the non-development highly inflationary current expenditure as well as upping the mark-up component that is widening the fiscal deficit, again an inflationary policy.
The IMF is almost entirely focused on raising the discount rate to check inflation, a policy decision that is appropriate for Western economies though in Pakistan the linkage between inflation and the discount rate is not established; with a high discount rate crowding out private sector borrowing with a negative impact on output that, in turn, fuels smuggling across our large porous borders with serious ramifications on the external value of the rupee that historically upped imported inflation.
One can only hope that the current economic team leaders are aware of this fundamental economic paradigm applicable to this country.
Copyright Business Recorder, 2024
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