Feb 18 - 24, 2008

It appears that the year 2008 is going to be equally bad for the poor and have-nots as the trend of ever-rising prices of food items continues with no sign of relief in the near future. The out going year of 2007 perhaps was the worst year in the economic history of Pakistan during which the food inflation soared by about 25 per cent.

The weekly inflation, measured through the Sensitive Price Index (SPI), increased by 14.46 per cent during the week ending January 24th over the corresponding period last year, according to the weekly price data released by the Federal Bureau of Statistics (FBS) recently.

The surge in the SPI inflation was mainly because of increase in the prices of 24 essential items. The SPI is witnessing an upward trend for the last three weeks consecutively because of poor supply of essential commodities in the market. The increase in the prices has made an impact on consumers of various categories, but it came very hard on the low income bracket.

The SPI witnessed an increase of 17.97 per cent and 17.49 per cent, respectively, for households in the two lower income brackets. For households in income brackets of Rs. 5,001-12,000, the increase in the SPI was in the range of 15.74 per cent while for households in the income group basket of over Rs. 12,000, the inflation registered a growth 11.71 per cent over the previous week. Prices of 24 items went up during the period under review as compared to the previous week. The prices of vegetable ghee increased by 5.26 per cent to Rs. 113.19 per kg as against Rs. 107.53; an increase of 2.35 per cent in plain bread, which stood at Rs 19.15 each during the week under review as against Rs. 18.17.


Almost eighty per cent of the total population is spending 50 to 60 per cent of total income on food and has been forced to curtail clothing, health and education expenses to stave off starvation.

Not everyone who is poor was born into poverty. New research shows that large numbers of poor people have fallen into poverty within their lifetimes as is happening in recent months in Pakistan where poverty is on rise due to food inflation and shortages.

Any inflationary impact that increases the rates of food badly impacts majority of people living in Pakistan as more than 80 per cent of them earn less than $2 per day. They are more vulnerable than the affluent class because they spend 50-60 per cent of their total income on food. When food becomes expensive they have to curtail other essential expenses to save themselves from starvation. It is time for starvation for those 23.4 per cent of the population that the government officially recognizes at living below poverty line.

Conventionally, poverty has been measured as a stock, considering the numbers of poor people at a particular moment in time. Such stocks can be compared across two points in time and the net change is calculated. Such analysis does not reveal, however, exactly how this change was derived: how many people fell into poverty within the specified time frame, and how many others concurrently escaped poverty?

Poverty is definitely on rise in Pakistan as its citizen fight to buy wheat, rise or ghee at whatever price they could get it. Price has lost significance, as it is the availability that matters. Past experience indicates that poverty rises sharply in these circumstances. According to economic experts, this is the right time to assess the poverty in the country, which would give the planners an insight to the vulnerable population of the country that could fall into poverty on slightest disturbance in economic out look.

The experts point out that except fixed income groups or elite class majority of families in Pakistan buy food on daily basis. There are families in poor localities that do not afford to buy Rs. 20 kg atta. In normal circumstances they used to buy one ore two kg of this commodity on daily basis or the shopkeeper in their neighborhood provided them the 20 kg bag on credit. They said now that atta is not available through normal retail channels. They have to buy atta now at cash and that too at much higher rates. The alternate staple food to atta is rice the rates of which have risen more sharply.


More disturbing is the fact that price pressure continues to mount despite the SBP's efforts to curtail it. Major reason being that the overall price index of the food group, which constitutes 40% of the overall CPI surged by 15% in last month. On the other hand, core inflation (which is essentially non-food and non-energy components) depicted a relatively more stable trend.

There is no doubt that the food inflation has come to be regarded as a global phenomenon; more so from its spread in free economies where fluctuations in prices depend on the interplay of market forces of supply and demand. Typically, in Pakistan behavior of prices, abrupt increase in the open market in particular, has remained a riddle. Many and varied have been identified as its causes. For one, it has been attributed to increasing prosperity of people, resulting in more money in the hands of people, thereby enabling them to chase costlier goods for their satisfaction. To justify this approach reference is too often made to widespread use of cell phones, which have witnessed tremendous popularity not only in large cities and business centers, but also in far flung villages yet awaiting their turn to electrification and frequently promised farm-to-market roads.

As against this, eminent economists and experts, whose views reflect the common man's perceptions, have feared worst to happen in days to come. Some of them see it in evil foreboding in soaring wheat prices, deepening with unchecked smuggling of wheat to Afghanistan. No wonder most of them, including the groups worst affected by rising incidence of prices view it as dangerous for the poor and calling for earnest efforts to contain food inflation.

An eminent economist and the former Finance Minister, Sartaj Aziz, while commenting on the subject in a TV talk show said that since the non-food inflation has been part and parcel of the development model pursued in Pakistan relying on consumerism and were supposed to be set at 8 percent per annum, triggered the food inflation. However what was a sheer mismanagement, Sartaj opined, was in the case of wheat crop. He pointed out that right from the beginning the wheat crop estimates were faulty. That was followed by export decision and the international factors stepped in to further aggravate the situation. He said with the Pakistani wheat cheaper in the regional market, the situation encouraged smuggling and as things stand the real price of flour has been conveniently readjusted to Rs. 24 per kg witnessing three times increase during the last eight years when a kilo of flour cost only Rs. 8.

The inflation in the food sector was caused among other factors by what has been termed the mismanagement of the agriculture sector by the policy planners. Farmer organizations do not mince words to say that the step motherly attitude of the government has been responsible for perpetual increase in the price of flour, many of the major vegetables and also the meat sources. In the context of flour price and supply issue people at the helm of affairs did not mince words to say that until the wheat supply dichotomies among provinces are not settled the flour crisis would remain in place. One official argued that when all the other provinces get less wheat, it was natural that they depended upon the Punjab resource to satisfy their needs.

The present government has all along been propagating about its economic achievements like rapid growth, a healthy rise in per capita income, better investment rate and comfortable foreign exchange reserves, but, honestly speaking these kinds of aggregates don't matter much for ordinary people of the country; what they care about most is the year round availability of various food items at reasonable prices for their families. At the prices now prevailing in the country, it is difficult to ensure easy availability of food items and their purchasing power is eroding fast because a large percentage of their incomes is spent on food and if this trend continues, there is every likelihood of a social unrest and mass resentment in the country with the result that the present government may have to bear heaving political cost in the forthcoming election.