The developing economies like Pakistan, which has a small economy, exports are limited to few main commodities/products and also concentrated too few markets, a large import bill and an ever rising the size population to feed, has poorly hit by inflation. The rapidly rising inflation has disturbed all segments of the society. As it has become one of the top most burning challenges in our economy.
The experts highlighted that one main source of inflation is a rise in import prices. the government may control inflation by curtailing dependence on external factors like reducing unnecessary imports. The Pakistan Bureau of Statistics (PBS) has recently published statistics for Consumer Price Index (CPI) based on inflation rate in the country. According to the statistics, Pakistan’s inflation hits 5-year high during March 2019. Statistics also showed that CPI inflation general grew by 9.4 percent on year-on-year (YoY) basis during March, 2019 as against to a rise of 8.2 percent in the last month and 3.2 percent during March 2018. Economic experts also urged that this rise in inflation continues to agitate purchase power parity of people who are paying up to forty percent more to procure common products. It can be believed that the devaluation of the local currency may be the major cause behind this inflation rate in Pakistan. Thus, the policy managers should consider this aspect carefully and proper attention should be given on growing output in the commodity producing sector.
Besides, the Government of Pakistan is continuously suffering from budget deficit which is not good for the economy; therefore, it must be kept under control to reduce inflation. It is also suggested that the main financial cut should be on non development expenditure, not on development expenditure. However, in the country there is always cut on development expenditures. On month-on-month (MoM) basis, it grew by 1.4 percent in March 2019 as against to a rise of 0.6 percent in the last month and a rise of 0.3 percent in last month i.e. March 2018. Statistics also showed that on MoM basis the top few commodities which are increased from month of February 2019 are: onions (39.28%), fresh vegetables (24.43%), tomatoes (18.83%), chicken (15.88%), pulse moong (12.68%), fresh fruits (12.52%), gur (2.88%), sugar (2.74%), beans (1.23%), fish (1.18%), spices (0.91%), pulse gram (0.60%), vegetable ghee (0.58%), rice (0.41%), pulse masoor (0.31%), bakery & confectionary (0.31%), cigarettes (0.27%), wheat flour (0.20%), cooking oil (0.18%), tea (0.17%), milk fresh (0.17%) and wheat (0.16%). Whereas on YoY basis the top few commodities which are also increase from the previous year (March, 2018) are: tomatoes (315.30%), fresh vegetables (28.18%), pulse moong (22.69%), sugar (18.20%), spices (17.66%), gur (17.18%), onions (15.85%), honey (15.23%), meat (13.33%), dry fruits (11.75%), beans (10.09%), pulse gram (9.87%), eggs (8.30%), sweet meat (8.28%), milk powder (8.07%), fish (8.02%), tea (7.87%), vegetable ghee (7.18%) and rice (5.11%).
Presently the issue of inflation takes primary significance in the country as the growing inflation has far reaching economic and social implications. From an economic and business perspective, the inflation rate directly relates to gross domestic product (GDP), money supply, exports, prices of imports, exchange rate, interest rate, fiscal deficit, government expenditure, tax revenue etc. because of higher price level, the people need more money to make day-to-day transactions and every consumer has to carry more money with them as value of money falls.
According to PBS’ statistics, core inflation measured by non-food non-energy CPI (Core NFNE) rose by 8.5 percent on YoY basis during March 2019 as against to a rise of 8.8 percent in the last month and 5.8 percent during March 2018. On MoM basis, it grew by 0.5 percent during March 2019 as against to a rise of 0.2 percent in previous month, and a rise of 0.7 percent in same month of last year i.e. March 2018.
Core inflation, measured by 20 percent weighted trimmed mean CPI (core trimmed) grew by 7.9 percent on YoY basis in March 2019 as against to 7.7 percent in the last month and by 4.1 percent during March 2018. On MoM basis, it grew by 0.4 percent during March 2019 as against to a rise of 0.2 percent in the last month and a rise of 0.2 percent in same month of last year i.e. March 2018.
Different researchers revealed that the inflation no doubt discourages saving and promotes consumption. The effect of inflation severity is more social than economic because of the erosion of the real value of money the real value of money. The recent inflationary environment in Pakistan may be blamed to some extent for lower deposit growth and lower savings. Previously, the country is accustomed to lower inflation and thus has less tolerance towards higher double digit inflation. In this backdrop persistence of high double digit inflation for third year in a row has become intolerable and the Government of Pakistan is pursuing combination of several policy initiatives.