PRICE HIKES CREATING MAYHEM

WHAT DO THE NUMBERS SAY

SHAMSUL GHANI (shams_ghani@hotmail.com)
Apr 21 - 27, 2008

The rising food inflation touched new heights by posting an all-time high figure of 20.6 per cent in March, 2008 detailed in the table below.

TABLE-1
CONSUMER PRICE INDEX BY GROUPS (2000-01 BEING THE BASE YEAR)

GROUP

GROUP WEIGHT

MARCH 2008

FEB. 2008

MARCH 2007

General

100

163.38

158.50

143.17

Food & Beverages

40.34

180.52

172.16

149.67

Apparel & Footwear

6.10

135.89

133.42

127.10

House Rent

23.43

158.04

156.25

142.89

Fuel & Lighting

7.29

164.25

160.45

151.34

Household Furniture etc.

3.29

142.91

141.41

133.62

Transport & Comm.

7.32

158.04

153.16

145.45

Recreation etc.

0.83

106.51

106.34

105.52

Education

3.45

139.85

139.60

135.15

Cleaning & Laundry etc.

5.88

145.69

141.52

125.66

Medicine

2.07

131.46

131.34

123.39

The overall inflation measured by CPI stood at 14.12 per cent at the end of March, 2008 with an increase of 3.08 per cent over the previous month. Medical expenses recorded a rise of 6.5 per cent, house rents went up by 10.6 per cent, transport and communication went high by 8.7 per cent while fuel and energy recorded an increase of 8.6 per cent, over the last year levels. After food, cleaning and laundry recorded the highest increase of 15.9 per cent over the last year, reflecting the jump in the prices of soaps, detergents and allied items. Food inflation which was 12.2 per cent in December, 2007 recorded an increase of 61 per cent during the first quarter of 2008. The food inflation would appear more threatening if the weight assignment of CPI is reviewed on realistic lines. Developing nations, the world over, are spending on food 50 to 75 percent of their disposable income. The weight assignment of 40.34 per cent in case of Pakistan is definitely on a lower side especially in the face of skyrocketing food prices.

The wholesale price index WPI, recording increases in wholesale prices of more than 425 items, registered an increase of 19.79 per cent in March, 2008 over March, 2007 which is also a record in our history of price indices.

TABLE-2
INDICES AT THE END OF MARCH

INDEX

2008

2007

2006

Consumer Price Index-CPI

14.12

7.67

6.91

Sensitive Price Index-SPI

18.57

9.66

6.77

Wholesale Price Index-WPI

19.79

6.11

8.51

The sensitive price index has also increased to an alarming level of 18.57 per cent.

WHAT DO THE CIRCUMSTANCES SUGGEST?

The rise in food inflation is triggered by all-time low levels of world grain stocks forcing the producer countries to impose a curb on their exports. Argentina, Cambodia, Egypt, Guinea, India, Indonesia, Kazakhstan, Malawi, Russia, Ukraine, Vietnam are such countries with more to follow. The growing demand from the two most populous countries India and China who plan to substantially raise their stock levels have added fuel to the fire. Growing world population and reduced output resulting from a number of factors have turned out to be a boon for the speculative forces that have shifted their focus from currency, stock and real estate markets to the world food markets.

The situation in Pakistan is riddled with a number of policy distortions. This year, we have imported 1.7 million tons of wheat and have smuggled out 1.5 million tons. Who bears the cost of this mismanagement and poor administration? Of course the common person, who, day in day out, is made to understand that the food price hike is the result of international price disparities and the spiraling global inflation. Our new government has taken some half-hearted measures, that too to check inter-province movement of wheat. Nothing substantial has been done to stop smuggling. A few days back, an attempt to stop flour smuggling into Afghanistan resulted in a cross fire between the security forces of the two countries. The matter was hushed up under the cover of ža misunderstanding". The "strategic depth theory" has taken a heavy toll on the well being of this country. We have lost so much by unnecessarily getting involved with the Afghanistan affairs. We must forthwith seal our borders to stop food as well as human smuggling. This country should at best be given the status of a Muslim neighbor country. Anything more than that will never bring any returns. The sooner we understand the better.

The recent increase in wheat support price has resulted in Rs.4 per kg increase in flour prices for the urban population. What benefits have accrued to the poor farmer is any body's guess. The Sindh growers are still not happy with the increase and are demanding more by refusing to sell. Is a tenant farmer or one with a meager land holding capable of a clout so big as to deny the government officials purchase of its produce at the declared price. Surely, it is the cartel of feudal and the middlemen blocking the peaceful procurement process. Any increase in wheat support price will not be effective unless radical land reforms are not introduced and the middlemen tiers are not reduced to the bare minimum.

Last year, we had a bumper rice crop of 5.5 million tons to cater to the domestic consumption demand of 2.2 million tons. In this scenario, a 100 per cent rise in rice prices coupled with the reported shortage in the market is quite inexplicable. To every body's chagrin, the surplus of 3.2 million tons has not been entirely exported. A major chunk has been taken away by the smugglers. Government's plans to tax the export of rice is not going to solve the domestic price problem. With the overheated global food markets and the resolve of a number of producer countries to check their exports, the importer countries are well prepared to pay still higher prices. In this scenario, a few billions added to country's tax revenues will put the common man under a further price stress. The rice export needs to be totally banned to allow the surplus offset the feared shortfall in wheat crop this season. The price check mechanism also needs a complete overhaul as it has miserably failed to deliver.