The recent drop in Pakistan’s inflation rate from a jaw-dropping 38 percent in May 2023 to a nine-year low of 2.4 percent in January 2024 is being hailed as a victory. But to whom does this victory belong? To the policymakers flashing charts in air-conditioned boardrooms, or to the ordinary Pakistani struggling to afford a meal? If one were to step outside the realm of economic jargon and examine what’s happening on the ground, it becomes clear that the official statistics tell only half the story. A shallow celebration of disinflation misses the much graver reality: the devastation of purchasing power over the past five years is so severe that it may take a decade to undo the damage.
Many fail to grasp the fundamental distinction between inflation and price levels. A decline in inflation does not mean prices are falling, it simply means they are rising at a slower pace. The average Pakistani, already battered by years of skyrocketing costs, still finds basic goods alarmingly expensive. And yet, there is talk in some circles of deflation, as if falling prices are the magic bullet to economic relief. But deflation is no friend of the working class. In a fragile economy like Pakistan’s, falling prices would squeeze businesses, triggering wage stagnation, job cuts, and ultimately, a recession. Do we want to swap high prices for mass unemployment? A stagnant economy where wages fall but so do opportunities?
Real wages, the true measure of a worker’s economic well-being—tell an even bleaker story. According to data from the Pakistan Bureau of Statistics, real wages for daily wage earners, used here as a proxy for the minimum wage, have been in free fall since July 2019. This means that despite nominal wage increases, inflation has relentlessly eroded the buying power of workers. The damage is so extensive that in order to restore real wages to 2017 levels, daily wages would need to rise by 20 percent annually over the next two and a half years. But is that even possible?
Historically, the highest average wage growth in Pakistan over the last decade has been a mere 12 percent. Expecting wages to grow nearly twice as fast defies economic logic. Even if the government or employers miraculously agreed to such increases, the result would be disastrous: a wage-price spiral that reignites inflation, making any nominal gains meaningless. And let’s not forget Pakistan’s chronic balance of payments crises, which historically flare up whenever GDP growth exceeds 4.5 percent. If nominal wages surge without a corresponding increase in economic productivity, the country will once again find itself trapped in a cycle of overheating, external debt accumulation, and yet another economic bust.
So where does that leave Pakistan’s working class? Policymakers cannot afford to slap band-aids on a bullet wound. Raising wages in isolation is not the answer. The real problem—one that no political leader has had the courage to tackle head-on—is Pakistan’s abysmal productivity. It is not simply about producing more but about producing more efficiently, with better technology, improved labor skills, and greater industrial capacity. Without improvements in productivity, wage hikes are nothing more than inflationary illusions.
Pakistan must face an uncomfortable truth: it is no longer enough to talk about economic growth in abstract percentages. The real challenge lies in ensuring that this growth translates into meaningful improvements in purchasing power. If wages are to rise without triggering inflation, the focus must be on making workers more productive, industries more competitive, and businesses more resilient. Until then, talk of economic recovery will remain just that—talk. For the millions still struggling to survive, the numbers on a government report mean nothing if their reality remains unchanged.
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