Consumer purchasing power

The Experts in the World Bank recorded that the rising food and energy inflation in Pakistan is predicted to diminish the real purchasing power of households, disproportionately affecting poor and vulnerable households that spend a larger share of their budget on these items. According to the Pakistan Bureau of Statistics (PBS), the CPI inflation General, grew by 13.4 percent on year-on-year basis in April 2022 as against to a rise of 12.7 percent in the last month and 11.1 percent in April 2021. On month-on-month basis, it grew by 1.6 percent in April 2022 as against to rise of 0.8 percent in the last month and rise of 1.0 percent in April 2021.

It is also recorded that the CPI inflation Urban was increased by 12.2 percent on year-on-year basis in April 2022 as against to a rise of 11.9 percent in the last month and 11.0 percent in April 2021. On month-on-month basis, it grew by 1.6 percent in April 2022 as compared to rise of 0.7 percent in the previous month and increase of 1.3 percent in April 2021. According to the PBS, the CPI inflation Rural was also increased by 15.1 percent on year-on-year basis in April 2022 as against to an increase of 13.9 percent in the last month and 11.3 percent in April 2021. On month-on-month basis, it was grew by 1.6 percent in April 2022 as against to increase of 1.0 percent in the previous month and increase of 0.6 percent in April 2021. In its Macro Poverty Outlook for Pakistan report, experts of WB also recorded that the political tensions and policy slippages can also lead to protracted macroeconomic imbalances. Macroeconomic risks are strongly tilted to the downside. They include faster-than-predicted tightening of worldwide financing situations, further rises in world energy prices, and the possible risk of a return of stringent Covid-19-related mobility restrictions, the report says. Statistics also showed that the Inflation is estimated to rise to 10.2 percent in fiscal year 2022 but moderate over the forecast horizon. Largely reflecting the imports surge in first half of 2022, the current account deficit is predicted to widen to 4.4 percent of the Gross Domestic Product (GDP) in fiscal year 2022. The Experts also identified that the macroeconomic adjustment measures and the weaker currency are predicted to tame imports mostly in FY2023. The current account deficit is predicted to narrow to 3.0 percent of the GDP in FY2024, as reforms to reduce import tariffs and the anti-export bias of trade policy gain traction. The fiscal deficit including grants is projected to widen slightly to 6.2 percent of the GDP in FY2022, and gradually narrow over the medium term as revenue mobilisation measures, mainly GST harmonisation and personal income tax reform, take hold. On the back of high base effects, recent macroeconomic adjustment initiatives and stronger inflation, the real GDP growth is expected to slow to 4.3 percent in FY2022 and to 4.0 percent in FY2023. However, thereafter, economic growth is projected to recover to 4.2 percent in FY2024, supported through the implementation of structural reforms to support macroeconomic stability and dissipating worldwide inflationary pressures. The report also noted that the long-standing structural weaknesses of the economy and low productivity growth pose risks to a sustained recovery. Strong aggregate demand pressures, in part because of previously accommodative fiscal and monetary policies, paired with the continued less conducive external environment for exports have contributed to a record-high trade deficit, weighing on the rupee and the country’s external buffers. Statistics in the report also identified that headline inflation rose to an average of 9.8 percent year-on-year in the first half of FY2022 from 8.6 percent in the first half of FY2021, driven by surging worldwide commodity prices and a weaker exchange rate. Similarly, core inflation has been increasing since September 2021. According to the officials in Pakistan, the price stability is prime concern of every government as high and variable inflation not only erodes purchasing power of consumers but also discourages investment. A controlled inflationary environment contributes to financial stability and economic growth. Inflation is caused through both demand and supply side of market forces. However, demand-side inflation can be controlled through prudent government expenditure policy and restricting government to borrow from the central bank. On supply-side not only cost of input matters but restriction on the free mobility of transportation can interrupt smooth supply chain of goods and services. A real time example has been seen during lock down to avoid adverse impact of COVID-19 pandemic. The pandemic resulted in large shocks to both demand and supply hence inflation was observed globally. Historically, it was observed that inflation had risen sharply during and aftermath of major wars and same was predicted in this pandemic. No doubt, the government of Pakistan is making efforts to increase the purchasing power of Pakistani consumers through bring down inflation by ensuring smooth supply of commodities, checking profiteering & hoarding and vigilant monitoring of prices both at Federal and Provincial levels.