The finance ministry has finally discovered that laws of mathematics function in Pakistan exactly as they do anywhere else in the universe! On Monday, the federal government announced victory over the inflation dragon, as monthly inflation number fell by 8.4 percentage points during June 2023 (YoY). The crisis of purchasing power erosion is over, given the month-on-month reading has turned negative for the first time in 10 months.

The confidence and glee displayed by the PDM leadership over one month’s positive CPI reading would be laughable, were it not for the manner in which it betrays a complete lack of comprehension over how inflation number works. It can’t be as if that folks at Q-block do not understand how base effects work, considering June 2022 was the time when monthly CPI had leapt forward by 7.5 percentage points following the massive increase in fuel prices implemented that month.

But ministers and spokespersons are hired for spin-doctorship just as much for their competence, so it is only natural that when given the opportunity to pull wool on our eyes, they would make hay while the sun still shines. However, what is particularly concerning is their insistence that the inflation dragon has been conclusively tamed, when in fact, it is expected to rear its head back up before the current quarter of the new fiscal year is over.

By now, details have begun to trickle in regarding the freshly agreed Standby Arrangement (SBA) with the IMF, giving away incumbents’ fondness for steamy climaxes – reached not a moment before proverbial hell would broke loose. It hasn’t come cheap either apparently, as the Fund would extract more than just a pound of flesh in the form of substantive hike in energy tariffs across the board: gas, electricity, and petroleum levy. Rise in energy tariffs would inadvertently usher a fresh cycle of second round effects across value chains, leaving little room or reason for inflationary pressures to calm down in the near term. But it isn’t just the commitments made to IMF that will keep the heat on ordinary consumers, but also food prices, which cannot be, in good conscience, blamed on the Fund-led framework of fiscal discipline.

Lest we forget, food basket’s contribution to national CPI climbed up to nearly half of total headline inflation, more than double its share five years ago – from 22 percent in FY18 to 48 percent in FY23. And while many commentators misleadingly believe that hyper food inflation was unleashed in the outgoing year due to the devastating floods, it must be remembered that the monsoon floods primarily disturbed perishable value chains – mainly, fruits and vegetables – where prices had already returned to historic range by end of third quarter (in addition to exportable IRRI and hybrid rice production in Sindh, which have very little weightage in national inflation indices).

In fact, the contribution from the food basket to headline inflation remained elevated throughout FY23 primarily due to non-perishables, of which wheat, flour, poultry, and edible oil were the worst offenders. The three commodities have a combined weightage of 9.5 percent in headline CPI but contributed an oversized share of 19.4 percent in headline inflation during FY23 (annual average). Compare this to perishables – primarily fruits and vegetables, which have a cumulative weightage of 5 percent in N-CPI and contributed less than 7.7 percent to headline number during the year. And unlike perishable prices – which have an inherent seasonality built-in to them – prices of non-perishables such as cereals, proteins, and fats rarely reverse tide. In fact, the monthly taming down in food inflation during June 2023 will most likely prove to be very short-lived, as the full scale of wheat floor price escalation unleashes itself by November 2023.

The only thing then the June 2023 inflation reading might be good for, is keeping the annual inflation average just below 30 percent, making N-CPI reading during FY23 not the worst, but definitely the second worst in national history. Little known fact: both WPI and SPI are still the worst ever in history, while the N-CPI reading is only 80bps below the worst ever reading of 1973-74: 29.98 percent. If this is the definition of victory in the eyes of finance minister, may God help the leadership of PML-N, which depends on him for everything from IMF negotiations, political dialogue, to consensus building with ‘stakeholders’. Freeing them from the signature Dar charm might just also rescue our economic future.