FOOD INFLATION

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Aug
15 - 21, 2011

Inflation is a crucial macroeconomic variable that exerts a significant pressure on an economy. Food prices have a larger impact on domestic inflation than do energy prices, as food accounts for a larger share of household consumption in developing countries.

In fact, the rising inflation pressure has been more intense in net exporting countries. Prices of close substitutes for rice are rising sharply as well: wheat, maize, and soybeans are all at record highs.

Three sets of factors must be taken into account in order to explain what is happening to food prices in developing Asia. First is the distinction between structural and cyclical factors; second is the distinction between supply and demand; and third is the relationship between international and domestic markets.

In 2008, food price inflation had hit double digits in Bangladesh, China, Hong Kong, Indonesia, Pakistan, and Vietnam.

Food price inflation is also rising in India, Malaysia, Philippines, Singapore, and Thailand. The problem is not confined to importing countries, as net exporters are also experiencing food price inflation.

In Pakistan, inflation has been driven by the rapid rise in food prices. Those persons who receive less than 2,350 calories of diet per day are bracketed among those suffering from the food crisis. Furthermore, the number of those suffering from the food crisis in Pakistan has increased from 60 million to 77 million, nearly half the total population of the country. However, 38 per cent of Pakistanis are food insecure i.e. they are not able to afford the poverty line intake of 2,350 calories per day.

Inflation measures for different groups finds that inflation hurts the poor more as their 50 per cent expenditure goes to food.

A review of disaggregated inflation with respect to different income groups reveals that variability is higher for vulnerable lower income groups than upper income groups. This is the result of higher expenditure incurred among the lower income groups on necessities with more variable prices i.e food. Cumulative inflation incidence for lowest income groups is 15.3 per cent which is highest incidence among all income groups.

On the other hand, the incidence of inflation is lowest for highest income group and it is far lower than lowest group inflation at 13.6 per cent.

People of Pakistan are facing increasing prices of petroleum goods and spiraling inflation.

It was estimated that the CPI, SPI & WPI of July 2011 increased by 13.77 per cent, 17.34 per cent and 21.13 per cent over July 2010 respectively. CPI, SPI and WPI of July 2010 had increased over July 2009 by 12.34 per cent, 13.90 per cent and 18.75 per cent respectively; and in July 2009 the CPI, SPI and WPI were 11.17 per cent, 9.74 per cent and 0.50 per cent over July 2008 respectively.

Further more, the main commodities, which showed an increase in their prices during July 2011 over June 2011 included (in per cent) tomatoes (85.34), chicken (18.65), eggs (14.65), vegetables (14.38), potatoes (12.10), onions (9.55), gram whole (7.02), pulse gram (5.25), gur (3.91), besan (3.75), sugar (3.07), wheat (3.06), cigarettes (3.00), rice (2.94), flour (2.74), fresh fruits (2.21), maida (1.60), milk products (1.44), beverages (1.28), milk fresh (1.20) and sweetmeat & nimco (1.01).

The government approved Rs2 billion subsidized price package of essential food items distributed through the outlets utility stores corporation (USC) during the Ramdan.

The essential food items included in the Ramdan relief package are atta, ghee, dal chana, white gram, dal mong, dal mash, baisen, dates, rice basmati, rice sella, rice broken, cold drinks, squashes, tea, spices and tetra milk packs. It was decided that USC would also reduce the prices of more than 800 items by 5-10 per cent by narrowing their own margin.

There will be a difference of Rs17 per kg in the rate of sugar in the open market and the price at the USC. Moreover, there is a difference of Rs125-185 in 20 KG bag of Atta between the open market and the USC.

The government is not yet able to control the price of good especially in this blessing month. Rising prices have always been a major problem for the people of Pakistan. Unfortunately, however, the problem only seems to aggravate further in Ramadan ever year.

CONCLUSION

The prices of essential commodities rise in Ramadan. Throughout the world, on special festivals like Christmas and Easter, the prices of essentials are significantly cut to make the festival/ occasions more worth celebrating. But, in Pakistan there is a negative trend. It is painful for people of the poor and middle classes to receive the blessings of Ramadan due to rising inflation. The government should control the prices of essential items at least during this month so that the Muslims can observe fasts in relief.

CPI, SPI & WPI % CHANGEOVER

YEAR CPI SPI WPI
Jul-2002 1.09 1.48 1.26
Jul-2003 0.57 1.34 1.31
Jul-2004 1.38 2.43 -1.00
Jul-2005 1.62 1.35 1.99
Jul-2006 1.61 1.36 1.42
Jul-2007 1.01 1.46 1.70
Jul-2008 3.34 3.77 4.35
Jul-2009 1.54 2.78 0.70
Jul-2010 1.23 1.85 1.67
Jul-2011 1.80 2.22 -0.64