INFLATION HITS POOR DISPROPORTIONATELY

SYED FAZL-E-HAIDER
Aug 11 - 17, 2008

The relentless surge in prices of essential commodities has eroded the purchasing power of middle and lower income groups in Pakistan. Six-time increases in oil prices over the past few months and surging energy costs have pushed prices of essential food items to an unprecedented level. The inflation scene is currently dominated by food inflation, which is hurting low-income groups disproportionately. Present government seems to be indifferent to the plight of the country's poor, as it has so far taken no effective steps to control the price inflation. Local experts fear that situation would be more alarming, as the impact of rising international oil prices is still to be felt.

The poor are hardest hit by the current price hike and the poor mothers are even forced to sell their children. There seems a rising trend of committing suicide among the poor and deprived sections of society and many have committed suicide, as they were unable to feed their families. The present Pakistan Peoples Party (PPP) -led coalition government is gradually withdrawing subsidies on gas, electricity and petroleum, which is also building up inflationary pressure. The prices of food and beverages rose by 32.05 per cent; house rent 12.39 per cent; fuel and lighting 11.38 per cent; transport and communications 24.91 per cent; clearing laundry and personnel appearances 17.74 per cent; medicare 14.16 per cent and household furniture and equipment 10.43 per cent in June 2008 over June 2007, according to the Federal Bureau of Statistics (FBS). The Wholesale Price Index (WPI) witnessed an unprecedented increase of 30.62 per cent in June 2008. The WPI rose to a record 16.41 per cent increasing prices of 425 items at the wholesale level in the fiscal year 2007-08. The average weekly inflation of essential commodities also increased by 30.02 per cent in June 2008.

Today, a common man in the country is unable to meet the basic needs of life including food, cloth and housing. It is ironical that ruling PPP of slain Benazir Bhutto had sought votes for 18 February polls raising the slogan of providing bread, cloth and houses to the poor masses. The government has still not even ensured the provision of subsidized flour, pulses, meat and ghee to the poor. It has not yet announced any subsidy on essential food items. According to the FBS, the Sensitive Price Index (SPI) inflation rose to an all-time high of 32.22 per cent per cent during the week ended on July 25 over the corresponding week of last year. The worst hits by rising inflation in the country are the households with Rs3,000 monthly incomes, according to the SPI data. The SPI has witnessed an increase of 34 per cent and 32.61 per cent for households in income brackets of up to Rs3,000 and Rs3,001 to Rs5,000, respectively. The increase has been in the range of 32.30 per cent for households in the income brackets of Rs5,001 to 12,000, and for households in the income basket of over Rs12,000; inflation registered a growth of 32.12 per cent over the week last year.

Last month witnessed the highest-ever increase in oil prices, which pushed the retail price of every commodity and the inflation recorded an increase of 1.66 per cent. The major factors contributing to the rising inflation include demand-supply problems, excessive borrowing by the government and delayed but compulsory adjustment in oil prices. According to the FBS, the spiraling food prices and weakening Pakistani rupee pushed up inflation to an all-time high of 21.53 per cent in June 2008, after a 2.10 per cent rise in consumer prices over May 2008. During July-June 2007-08, average food inflation stood at 17.64 per cent and non-food at 7.89 per cent against 10.28 per cent and 6.01 per cent respectively in the previous fiscal year.

The poor and the lower middle class find it increasingly difficult to make both ends meet with soaring prices of essential commodities including foodstuff. The food inflation, measured through the Consumer Price Index (CPI), rose to record 25.50 per cent in April 2008, the highest not only in the country but in the entire region, according to the FBS. CPI food inflation began to strengthen in September 2007 and was recorded at 16 percent in February 2008 after reaching a local peak of 18.2 percent during January 2008, the highest level seen since April 1995. The steady increase in the prices of 24 consumers' items has pushed up the overall inflation to a new historic height. A further increase in the oil prices would further push up prices of these products.

Local experts believe that inflation has hit poor consumers harder than the more affluent ones, as for each one per cent increase in inflation, more and more people fall into poverty. The poor are highly sensitive to the price changes in food, particularly staple food items. The experts believe that rising food prices can undermine the gains from poverty reduction and human development that the country has experienced for the last five years. Households struggling to meet the minimum standards of living might have no choice but to cut down their expenditures on health and children's education.

Presently, the soaring inflation has emerged as No.1 economic problem of Pakistan.

The country's business competitiveness index (BCI) registered a decline of 15 positions from last year, from 64th to 79th position, according to the annual report of Competitive Support Fund (CSF) released this month. Stagnation in the country's competitive rankings will have far-reaching implications for poverty reduction, fiscal and trade balances, inflation and economic growth. Pakistan is among the lowest one-third countries in global competitive ranking as it ranked 92nd out of 131 countries in the latest Global Competitive Index (GCI). Competitiveness is the key to the country's future prosperity in a globalized economy but its ranking poses an enormous economic challenge for the present coalition government.

Pakistan's coalition government has so far failed to tame the soaring inflation that surged to an all-time high of 12 per cent during the fiscal year 2007-08 ended last month (June) from 7.7 per cent in the previous year. Weakening rupee value is also a contributing factor for inflation, as it is making imports costlier. . Pakistan's central bank is pursuing a tight monetary policy to control the inflationary pressure that it anticipates to increase in the months ahead.