FOOD INFLATION POSING FORMIDABLE CHALLENGE TO NEXT GOVT

SHAMIM A. RIZVI
Islamabad
Mar 24 - 30, 2008

Food inflation, highest ever in the history of Pakistan, is to pose the most formidable challenge for the PPP led elected Government likely to assume power next week. The poor and have-nots who have been hit hard are living in miserable conditions and they are expecting immediate relief from the government whom they have voted into power.

The caretaker Government by increasing the price of petrol and diesel twice in a fortnight has added much fuel to the burning inflation. Food price hike coupled with soaring prices of energy has pushed the inflation to the dangerous level of 17.8 percent over the year making life unbearable for the downtrodden.

Food inflation remained a headache for the last government that somehow compromised on energy prices to gain some benefits in the electioneering year but the inflation genie ultimately sank the boat of "enlightened moderates".

Official statistics show that after an average increase of nine percent in the prices of petrol and diesel the weekly price indicator-Sensitive Price Index, accelerated by more than two percent for all income groups. During the week ended on March 6, it increased by 2.26 percent for the income group of up to Rs3,000 that ultimately jacked-up the inflation to the level of 17.83 percent as against the same period of the last year.

For second lowest income group of up to Rs 5,000 the increase in inflation on weekly basis was 2.22 percent, for income group of up to Rs 12, it soared by 2.18 percent and for the highest income group the surge was 2.67 percent. Thus, the combined SPI (average of all income groups) saw a growth of 2.54 percent on weekly basis and 14.53 percent on year-on-year basis.

According to Federal Bureau of Statistics bulletin, out of 53 commodities rates of 41 essential" items increased over the year. On week-on-week basis 30 items" prices soared while the prices of seven products declined slightly. The major increase was in prices of tomatoes, chicken, petroleum products, edible oils, rice, flour, red chilies and milk fresh. The prices of following goods increased both on yearly and weekly basis. On yearly basis, the goods witnessing growth include, tomatoes 177.4 percent, chicken seven percent, petrol 9.5 percent, diesel 9.3 percent, vegetable ghee (loose) 85 percent, kerosene 16.6 percent, cooking oil (tin) 52.6 percent, vegetable ghee (tin) 49.5 percent, mustard oil 70.4 percent.

Pulse masoor pulse 71.2 percent, red chilies 39.8 percent, flour 22.2 percent, rice (irri-6) 44.5 percent, rice basmati (broken) 48.9 percent, curd 14 percent, milk fresh 14.4 percent, cooked beef (plate) 12.7 percent, salt powdered 11.6 percent, tea (prepared) 12.2 percent, coarse latha 13 percent, washing soap 28.7 percent, lawn 4.6 percent and mutton 6.2 percent. The following items" prices remained unchanged on weekly basis but surged on an annual basis. Beef charges increased by 3.6 percent, bread 26.5 percent, milk powdered (NIDO) 7.4 percent, tea packet 2.9 percent, cigarettes 4.4 percent, voil printed 6.1 percent, gents sandals 25 percent, firewood 16.5 percent, electric bulb 60-watts 6.3 percent, match box 31.6 percent and bath soap 34.9 percent.

Food inflation crated rumpus in 2006-07 when it rose to 10.3 percent, from 6.9 percent in 2005-06. Despite a hue and cry by the general public, observers and analysts, neither the previous government of Shaukat Aziz nor the caretakers could do anything concrete that could make a dent into the growing inflation. Consequently, in the current financial year the inflation turned into a major challenge for the policy makers and threat for the consumers.

The question as to hew to tame the inflation is being discussed at public forum at private gatherings in Islamabad these days. Talking informally to mews men at a social gathering, former Finance Minister in the Nawaz Sharif Government Sartaj Aziz commented that it would be a serious challenge to the PPP-PML (N) coalition He said that the rising world prices of oil and food items have played a key role in ballooning inflation. Sartaj Aziz said that the coming government would neither increase the oil prices nor impose new taxes and instead the government expenditures would be trimmed to control inflation and budget deficit.

As a short-term strategy, the new government could give a special attention to the agriculture sector to enhance the production of crops such as wheat, vegetables and fruits, which have a major weight in the inflation basket.

Mr. Aziz said that efforts would have to be made to provide inputs to farmers at better rates so that the farmers could increase output of traditional crops, including the high value added crops like pulses and vegetables that would lead to cut in the imports of essential commodities.

To further develop the agriculture sector, a mechanism of storage, supply and retail sale of agriculture items would have to be put in place. Meanwhile, employment opportunities would be created because unemployment and inflation put double burden on the people and make their life miserable.

Renowned economist and Head of Research, Institute of Business Administration Qazi Masood said that in order to analyze/explore the theme of inflation, it is important to address all the dimensions of inflation, persisting in Pakistan for the last 5 years. Inflation has two components: food inflation and non-food inflation. Lets' talk about non-food, which is also termed "imported inflation" in economic discipline at first.

He asserted that the new government has very few and limited options to tackle this type of inflation with domestic measures. The non-food imported inflation is attributed to international oil prices mechanism where the government would be helpless and could not do any thing as international research institutes studies on energy and fuel are finding that, sooner or latter, following the international trend of oil and energy consumption, the oil prices can surge to 135 dollars a barrel.

But in short-run strategy, the upcoming government would have to increase industrial output to control consumption of oil. In medium term, the government should focus on the road transport, which consumes high quantity of fuel by introducing comprehensive low-consumption-driven public transport system. Low consumption is also undertaken by using alternative resources of energy like solar energy.

Another economic analyst suggested that the new government should set up an Economic Advisory Body to tackle the major tasks of inflation, energy, and water crisis and to look into the widening trade and fiscal imbalances. Some eminent financial experts from the coalition government and private sector can be selected for the body that can firm up acceptable and astute decisions to overcome different crisis, confronting the national economy and the general public. He said that the coming four months a very crucial for the economic policy making as the country would be facing challenges like energy, water crisis, inflation and fiscal imbalance. He said that instead of leaving economy to an incompetent finance minister, and Economic Advisory Committee should be put in place to resolve the major issues and to satisfy the general public that had given decisive mandate in favour of PPP and PML (N), he said.