A CHALLENGE TO ROTI-KAPRA AUR MAKAN CONCEPT
Mar 10 - 16, 2008
The increase in food prices is a global phenomenon of the day yet its pinch is being felt more severally because the income level of the masses does not match to the GNP level around the world.
Though the Ministry of Finance feels that the major contributor to the sharp pick up in food prices include the rise in the prices of various kinds of pulses; sugar, milk, meat, chicken, potatoes, tomatoes, onion, beverages etc, is the imbalance in the demand and supply of these commodities.
However, the increase in oil prices should not be ignored for attributing inflated food prices on the back of its widespread impact on general prices. The government having no option but to pass on the growing pressures of international oil prices has finally increased price of POL products on March 1, 2008. Prior to increase in oil prices, the government was absorbing the fuel prices by heavy subsidies to the tune of Rs14 billion per month a serious burden on the exchequer. This increase in POL prices was the first installment and more are in the store in view of the unabated increase in international oil prices.
Actually, the recently announced price hike was long due, as the government was holding back the petrol prices in Pakistan for quite a long time now. Oil prices in the international market were climbing up for the past several months; however, the government of Pakistan did not pass on the rise in prices to the general public mainly due to the upcoming elections.
It seems a valid suggestion that in order to contain food inflation in particular and inflationary pressures in general the incoming government by sacrificing a certain portion of revenues generated by heavily taxed POL products can provide a breathing space to the average income group.
On the agriculture front, it is important to note that domestic agriculture crops outcome (particularly wheat, sugarcane & gram) during FY07 were good in size. However ineffective demand-supply management led to crisis currently persisting in the country.
It is felt that the mounting crisis two months ago prior to the general elections have however started subsiding and showing a sign of improvement in supply of these commodities their prices have started declining which gives a feeling that opposition having strong roots in rural areas created food crisis for their political benefits.
It said Gross Domestic Product growth is expected to remain below the annual target of 7.2%. "Despite the likelihood of some deceleration, the Financial Year 2008 growth outcome is likely to remain reasonable," It said inflation is forecast to be significantly above the target of 6.5%, due principally to the high food and energy commodities" prices. Moreover, the rising prices of these commodities are driving a "second round" inflationary impact as evident in the rise of core inflation. If SBP had not proactively tightened Monetary Policy in June 2007, domestic inflation would have been even higher.
SBP OBSERVATIONS ON FOOD INFLATION
Food inflation (YoY) increased significantly, from 12.2 percent in December 2007 to 18.2 percent (YoY) in January 2008.
Food inflation remained high and has exhibited a double digit rise for the fifth consecutive month (from September 2007 to January 2008). This double digit inflation is mainly due to a sharp increase in the prices of some key food staples like wheat, rice, vegetable ghee, mustard oil etc.
The impact of the substantial increases in these prices overshadowed the impact of the fact that prices of some vegetables, pulses and some other food items like potatoes, onions, pulse gram and sugar, either declined or remained unchanged during the month of January 2008.
A disaggregated analysis of the CPI food basket components shows that out of total 124 commodities under the food group, prices of 60 commodities including chilli powder, wheat, tomatoes, rice, mustard oil, vegetable ghee, green chillies and milk powder etc. exhibited double digit YoY increase in the range of 10 to 67.9 percent during January 2008. The combined weight of food commodities in the food group recording double digit inflation was 60.4 percent. The most prominent upward movement was observed in the prices of chilli powder, wheat flour, tomatoes, rice and mustard oil that showed price increases ranging between 60 to 68 percent YoY in January 2008. On the other hand, prices of 20 commodities including key staples such as onions, potatoes, sugar, basen, pulse gram, pulse moong etc. either declined or remained unchanged during the month under review.
On a month over month (MoM) basis, an increase was witnessed in the average prices of food commodities such as maida, wheat, chilli powder, vegetable ghee and some fruits during January 2008 compared to December 2007; whereas the prices of onions, potatoes, tomatoes, sugar, chicken etc. declined.
The impact of high food inflation was reflected in the rising contribution of individual food items in the overall YoY CPI inflation. Seven out of the top10 contributors to overall inflation during January 2008 were from the food group.
These items include wheat flour, vegetable ghee, fresh milk, rice, fresh fruits, meat and wheat.
CONCLUSION: The incoming government has an agenda to contain food prices under its slogan to bring "Roti-Kapra aur Makan" within the reach of the people. However the major concern of the day is that food prices should not be allowed to go beyond the reach of millions and millions of average income groups. Besides streamlining the supply side, the economic manager would be required to keep an eye over profiteers and the hoarders. The economic managers would have to give a serious thought to bring price stability in POL products as well because the farm to market cost is feared to go up following increase in fuel prices. The food and fuel prices is really a great challenge before the newly elected government and people are attaching great hopes that the peoples government address the issue in accordance with the hopes and aspirations of the people of this country.