Home / This Week / Research / Rising inflation rate in Pakistan, Govt must take prompt measures

Rising inflation rate in Pakistan, Govt must take prompt measures

Studies revealed that high and sustained economic growth with low inflation is the central objective of the macroeconomic policy makers in any economy. The relationship between growth and inflation, however, depends on the state of the economy. The studies furthermore revealed that high growth, without an increase in inflation, is possible if the potential output of the economy is growing enough to keep pace with demand. It is also possible if the actual output is below the potential output and there is sufficient spare capacity available to handle with the demand pressures. The economists on the other hand, revealed that rising inflation can have severe results for the economy. High inflation is always correlated with increased price variability, which can lead to uncertainty about the future profitability of investment projects. Inflation may also impact an economy’s balance of payments by making its exports relatively more costly. Moreover, inflation can interact with the tax system to disturb borrowing and lending decisions. Firms may have to allocate more resources to dealing with the effects of inflation.

In Pakistan, statistics showed that in January Pakistan’s Consumer Price Inflation (CPI) was registered at 14.56 percent, which was the highest result it has been in greater than a decade. However, the index started declining from February, when it had eased to 12.4 percent. It additionally declined to 10.24 percent in March, 8.5 percent in April, and then to 8.2 percent in May. The State Bank of Pakistan (SBP) presently revealed that for the year 2020 Pakistan’s inflation was not the highest in the world. SBP compares Pakistan’s inflation to a few developing and developed countries. In this year the country did have a relatively elevated inflation rate so far. Furthermore, Argentina, Iran, Nigeria and Turkey’s inflation has been on higher note. Since January, inflation in the country has declined sharply and much faster than in most other emerging markets. According to profit’s own analysis, there are almost 27 other countries that have a higher inflation rate than Pakistan. Presently, in the world the highest inflation is in Venezuela with 2,431 percent in March 2020. Around the world the average inflation rate is 21.25 percent. However, this statistics includes not only Venezuela’s inflation rate, but also Zimbabwe’s high inflation rate, at 766 percent in April 2020. If these two outliers are removed, the average global rate declines to 4.01 percent.

According to SBP report, the National CPI inflation (2015-16=100) was registered at 8.5 percent on yearly basis in April 2020 as against to 10.2 percent in the last month and 8.3 percent during the same month of last year. The National CPI inflation on monthly basis was registered at -0.8 percent in April 2020 as against to 0.04 percent in the last month and 0.7 percent during the same month of previous year. Seasonally adjusted monthly CPI inflation was registered at -1.18 percent in April 2020 compared to -0.12 percent in the last month. SBP’s statistics also revealed that the Urban CPI inflation was registered at 7.7 percent on yearly basis in April 2020 as against to 9.3 percent in the last month and 8.4 percent during the same month of previous year. Rural CPI inflation was registered at 9.8 percent on yearly basis in April 2020 as against to 11.7 percent during the last month. It was 8.1 percent during the same month of last year.

 

Moreover, the Urban Core inflation (trimmed) on yearly basis was registered at 6.7 percent in April 2020 as against to 8.7 percent in the last month and 7.4 percent during the same month of last year. Rural Core inflation (trimmed) on yearly basis was registered at 9.3 percent in April 2020 as against to 11.4 percent in the last month and 7.3 percent during the same month of last year. Urban Core (Non-food, non-energy (NFNE)) inflation on yearly basis was registered at 6.4 percent in April 2020 as against to 7.4 percent in the last month. It was 7.0 percent during the same month of last year. According to SBP, Rural Core (NFNE) inflation on yearly basis was registered at 8.5 percent in April 2020 as against to 9.4 percent in the last month and 6.8 percent during the same month of last year. On yearly basis, the WPI inflation was registered at 4.8 percent in April 2020 as against to 9.2 percent in the last month and 17.4 percent during the same month of last year. On the other hand on monthly basis WPI inflation was registered at -2.1 percent in April 2020 as against to -0.9 percent in the last month. It was 2.0 percent in the same month of last year. Moreover, SPI inflation was registered at 8.5 percent on yearly basis in April 2020 as against to 12.2 percent in the last month. It was 11.3 percent in the same month of last year. Moreover on monthly basis SPI inflation was also registered at -2.6 percent in April 2020 as against to -1.1 percent in the last month. It was 0.7 percent in the same month of last year.

No doubt, the inflation rate in the country has gone up which is highly alarming and it is big indicator that there is going to be more price hike but the income slab of almost all lower middle class people and the poor will remain static. We know that our country is an agro-based country and is capable to feed many neighbouring states too but the rise in prices of regular products like wheat and sugar, which have also presently gone short in supply is the main reason of inflation. If the Government of Pakistan is serious in responding to inflation, a crackdown on the markets will not produce the required results. It will rather create additional panic, leading to even higher food prices. The Government of Pakistan must restore local governments in whatever form it wishes. It has to put price control committees in action with clarity of command chain.

Check Also

Review of foreign loans during July-Dec 2020

Review of foreign loans during July-Dec 2020

Statistics show that during July-December of fiscal year 2020-21, Pakistan has received $5.7 billion in …

Leave a Reply