INFLATION SEEMS TO BE GETTING OUT OF CONTROL

RISING PRICES OF FOOD ITEMS AND POL PRODUCTS ARE RENDERING PEOPLE POORER

SHABBIR H. KAZMI
Apr 21 - 27, 2008

It is feared that the emerging shortage of food products and their rising prices could create serious law & order situation in many countries. Violent demonstrations are being witnessed in many countries. In Pakistan more and more people are being pushed below the poverty line and middle class is vanishing fast. Many analysts are of the opinion that if immediate steps are not taken there would be only two classes, rich and poor. In fact rich are getting richer and poor are getting poorer.

Some of the politicians blame their opponents for the price hike, only because they either do not know about the global scenario or deliberately criticize their opponents to attain political mileage. Without offending the new government, the leaders of winning parties were never tired of blaming Pervez-Shaukat duo of being responsible for hike in POL prices. But the latest hike in POL prices announced in last week also shows that they are helpless. Therefore, instead of indulging in blame game all the political parties should try to understand the global phenomenon and come up with appropriate policies. No one doubts that any one wants to fleece the masses. Irrespective of political affiliation the elected governments are helpless.

CRUDE PRICE

On Thursday last week the price of New York oil hit a new high of $115.54 per barrel due to eroding value of dollar against all major currencies, which force the investors to invest in commodities. Prices could hit $150 per barrel in next couple of weeks.

Reportedly, New York's main oil futures contract, light sweet crude for delivery in May, later stood at $114.50, down 43 cents from Wednesday's close as profit-taking occurred. Brent North Sea crude for June delivery soared to a historic peak of $113.38. It later stood at $112.22, down 44 cents.

According to analysts crude futures were driven by US oil stockpile figures and the dollar still holding near all time lows against the euro. It seems that investors are not prepared to liquidate oil futures at the moment, with strong fund and speculator interest as they seek better returns in commodities.

As the euro hit a record high $1.5984, the European Central Bank warned that surging euro zone inflation could last longer than thought, reducing chances of a cut to interest rates. The sliding US currency makes dollar-priced goods, like crude oil, cheaper for foreign buyers and stimulates demand. Therefore, as long as the greenback remains under pressure, market participants will continue to invest in gold, oil and other commodities.

The government has announced an increase of Rs 3 per liter in the prices of petrol and diesel. However, the price of kerosene remained unchanged. This is the first increase in petroleum prices by the new government coming with the delay of one day because Finance Minister Ishaq Dar was out of the country. This is the third increase in oil prices during last 45 days. It is feared that the domestic prices might be increased further to reduce subsidy and pressure on the balance of payments.

The price of kerosene had not been increased on the directive of the prime minister to avoid further burden on the poor. The government claims to pay Rs20 per liter subsidy on kerosene and Rs19 per liter on diesel. According to statistics of the finance ministry, subsidies on oil prices are expected to be around Rs120 billion by the end of the fiscal year. The government has paid Rs72 billion in price differential claims to oil marketing companies.

The Indian Prime Minister Manmohan Singh has announced reduction in the price of petroleum products by 73 paisa as part of the "Mehangai Khatam Karo Scheme". One fails to understand if India can afford to reduce prices of POL products, why the Pakistanis can't provide these products at lower price when the government claims to pay billions of rupees subsidies on these products.

FOOD SHORTAGE

Tanvir Sheikh, President, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed serious concern over the World Food Program report on food shortage in developing countries, including Pakistan. He also called for immediate measures to tackle the expected crisis.

The report highlights prevailing food crises due to rapidly escalating global food prices expected to wipe out seven years of progress in the fight against poverty. The FPCCI leader called for short-term emergency measures in many regions to meet the urgent food needs to avoid starvation and urged for longer-term efforts to significantly increase production of food grains.

Pakistan agriculture sector was considered as a major part of the real sector economy. However, its share in the GDP has declined from 60 per cent in 1951 to around 20 per cent in 2007. The lower productivity in agriculture sector and the migration of rural population to urban areas are the major causes of the declining share of agriculture sector in the economy. The development of agriculture is not only important for the overall economic growth but also for a balanced development. Pakistan's industrial development is heavily dependent on the agriculture sector, which are textile, sugar, tobacco, fertilizer, and food and beverages industries.

Tanvir proposed that Minfal, Planning Commission and ECC should jointly prepare an action plan to avoid the possible impact of expected crisis and a long-term strategy to increase the agricultural productivity. He also informed that the FPCCI research department was preparing a comprehensive report on the severity and incidence of the food crisis in developing countries and its possible impact on Pakistan. The report is expected to be released next week. It will also suggest possible solutions.

The government has announced increase in minimum wages but the proposed increase is highly insufficient. Prices of commodities like wheat, milk, vegetables and fruits have broken all the previous record. Keeping in view the international prices of wheat, hovering around $500 per ton, it is feared that wheat flour would be sold at Rs 40 per kg unless the government pay huge subsidy.