Rising food inflation — a cause of concern
SHAMIM AHMED RIZVI,
Bureau Chief, Islamabad
July 23 - 29, 2007
The prices of a large array of food items have registered an unprecedented rise during the last few years hitting hard the poor and low-income. This rising trend is continuing unabated as during the week ending on July 15, the sensitive price index (SPI) mainly comprising of basic food item showed about 9.5 percent increase over the last month.
Wheat, flour, rice, pluses, sugar and edible oil all have gone up. Most surprising is the increase in flour prices by one rupee a kg despite the fact that the country had a bumper wheat crop this year. Similarly the price of sugar is not understandable as there has been no shortage of sugarcane and there has been no increase in their prices. During the out going financial year food inflation, as officially admitted by the government, has been over 9 percent as against 5.0 percent in core inflation. This indicates that the incidence of inflation is much high for poor segment of the population.
According to a comparative chart of prices of 10 basic food items in 2000 (when General Musharraf government took over) and in July 2007 recently published in a national daily the prices of these food items have shot up, on an average by 120 percent during the last 7 years. According to the report cooking oil and Banaspatti Ghee have registered the highest increase. It was available at Rs.40 to 45 per kg in 2000 against Rs.100 per kg. Now. Rice Basmati has gone up from Rs.32 per kg to Rs.70, Atta bag of 20 kg has shot up from 170 to Rs.270 per bag. Prices of all pulses have shot up from 90 to 140 percent during the seven year. Same is the case in prices of vegetable and fruits.
On the eve of last budget session the government came out with a big publicity campaign and spent crores of rupees in highlighting the economic growth achieved by the present government during its tenure. They talked about increased production of cars and motorcycles but never referred to the unprecedented rise of the food and kitchen items. The rising inflation has become hallmark of the current economic activity and its first admittance has come in the monetary policy statement of the State Bank for January to June 2007.
The rising inflation has serious macroeconomic consequences and threatening hard earned macroeconomic stability. The worsening income equality is aggravated by persistently higher food inflation. This is evident from the fact that lowest income group is subjected to highest inflation among income groups which means the poverty situation has definitely worsened. The current inflation spree is yet an indication of failure of the administrative machinery and economic management. The sugar millers with their strong political clout are extracting their pound of flesh from poor consumers. The inordinate rise in sugar prices was time and again linked with rise in the prices of sugar in the international market but now when prices in the international market fell drastically, nobody in the government is talking about international prices of the sugar. Hoarding and artificial shortage has become order of the day. It was evident on the eve of the torrential rains in the country t hat supply chain of essential food items would be disturbed but there was no serious attempt from the government machinery for bridging this gap through imports, rather people in the government or their kith and kin started exploiting this situation for making money. The government's failure to check cartel formation in cement, sugar and steel has encouraged extra market forces in the country.
The higher incidence of inflation is hurting especially the lower income group. It means the gap between 'haves' and 'have nots' is likely to widen further. The erosion of purchasing power of the poor is definitely bound to reduce demand for goods and services on the one hand and deteriorate poverty situation in the country.
Inflation is hurting fixed income groups and it has implication for productivity and export competitiveness. Pakistan is already lagging far behind on both counts and has a very poor record of productivity growth and whatever advantage on the competitiveness side it has attained during the last few years, has been hit badly in the exports area. The meager growth in exports of just 4.5 percent during the last year is self-explanatory and need no comments on erosion of competitiveness. Pakistan has lost its comparative advantage in textile industry where rising cost of production is making competition versus regional players like India, China and Thailand even tougher. The textile industry which has always been nourished on incentives form the government is making yet another all out effort to extract benefits from the government.
Rising inflation in lower income groups means more special unrest and resentment. This has serious implications for law and order, which has already weakened considerably. This situation has serious implications for overall investment climate. The anarchy like situation where sellers, suppliers and manufacturers are free to continue with their profiteering racket and exploit helpless consumers is weakening people's trust in the ability of the government to control prices. This bizarre situation demands strict action on the part of the government. The incidence of higher inflation on the common man is creating a situation where all economic successes of the government during the last few years have been over shadowed.
In the absence of effective social safety nets and any policy on income distribution and not enough jobs, the overarching issue is the misery that a persistent high rate of inflation inflicts on the fixed income groups particularly the poor. The vulnerable are getting more impoverished and their quality of life is deteriorating. Many often go without meat for weeks. With all hopes dashed, some commit suicide in desperation. The development strategy needs to be reviewed and altered to ensure a high growth rate with low inflation. The poor and vulnerable do not have a voice in the military led government to seek solutions to their problems, as the regime is not accountable to the people. Democracy is very much a bread and butter issue for the ordinary citizen.