Pakistan’s economy has faced significant challenges over the past several years, with inflation
being a persistent issue. After enjoying a brief decline in inflation for six consecutive weeks, the
latest economic data has revealed that weekly inflation has once again increased. The Weekly
The sensitive Price Indicator (SPI) for the Combined Group increased by 0.11% week-on-week
(WoW) during the week ending May 30, 2024.
For six weeks, Pakistanis had a ray of hope as inflation rates showed a steady decline. This trend
provided some much-needed relief to consumers who have been struggling with high prices for
basic goods and services. The decline was mainly because of a combination of government
measures, including subsidies on essential commodities, improved supply chain management,
and favorable international market conditions. However, the latest data indicates a reversal of
this trend, with inflation rising once more.
The Sensitive Price Index (SPI), which had been falling since the week ending April 18, saw a
series of declines: 0.79% (April 18), 1.1% (April 25), 1.0% (May 2), 1.39% (May 9), 1.06%
(May 16), and 0.34% (May 23). However, in the latest week, the SPI rose by 0.11% compared to
the previous week.
The Pakistan Bureau of Statistics (PBS) reported that the Sensitive Price Indicator (SPI), which
tracks the prices of 51 essential items, recorded a noticeable increase. This increase has sparked a
debate about the underlying causes and the potential impact on the economy and everyday life.
Some of the prices of items that increased during the period under review include tomatoes
(11.25%), onions (3.62%), pulse mash (2%), bananas (1.78%), potatoes (1.23%), curd (1.17%),
pulse gram (1.04%), milk fresh (0.56%), cigarettes capstan 20’s packet each (0.52%), beef with
bone (0.06%), and gur (0.03%).
Causes of the Sudden Inflation Surge
Several factors have contributed to the recent rise in weekly inflation in Pakistan. One significant
factor is the fluctuation in international oil prices. As a major importer of oil, Pakistan’s
economy is highly sensitive to changes in global oil prices. Recently, oil prices have also
increased, mainly due to geopolitical tensions and supply chain disruptions. This increase has
translated into higher transportation and production costs domestically, which in turn has pushed
up the prices of basic consumer goods and services.
Another contributing factor to this inflation surge is the depreciation of the Pakistani rupee
against major foreign currencies. This depreciation has made imports more expensive, adding to
the cost of imported goods, including raw materials and finished products. This has created a
ripple effect across various sectors of the economy, leading to higher consumer prices.
Moreover, domestic factors such as supply chain bottlenecks, seasonal variations in agricultural
produce, and administrative inefficiencies have also played a major role in this sudden rise. For
instance, recent floods in certain parts of the country have disrupted agricultural production,
leading to shortages and price hikes for food items. Similarly, inefficiencies in the distribution
network have caused delays and increased costs, further worsening inflation.
Impact on the Population
The rise in inflation has significant implications for the general population, particularly for low-
and middle-income households. As prices of essential commodities such as food, fuel, and
utilities increase, household budgets are stretched thin. Many families find it challenging to
afford basic necessities, leading to a decline in their standard of living.
Food inflation, in particular, has been a major concern. With staples like wheat, rice, sugar, and
vegetables becoming more expensive, many families are forced to cut back on their consumption
or switch to cheaper or less nutritious alternatives. This can have long-term consequences on
public health, especially for children and vulnerable populations.
Transportation costs have also increased drastically, making it more expensive for people to
commute to work or school. This creates a ripple effect on other expenses, as higher
transportation costs translate into increased prices for goods and services across the board. The
rising cost of living has also led to increased financial stress among households. Many are
turning to borrowing to make ends meet, which can lead to a cycle of debt and financial
instability. The psychological impact of inflation, including anxiety and uncertainty about the
future, cannot be understated.
Government Response
In response to the recent surge in inflation, the Pakistani government has announced a series of
measures aimed at mitigating its impact.
The government has pledged to increase subsidies on essential commodities, particularly
food items, to make them more affordable for the general population. Additionally,
efforts are being made to streamline the supply chain and improve distribution networks
to ensure that goods reach consumers more efficiently and at lower costs.
The government is also focusing on stabilizing the Pakistani rupee by implementing
measures to increase foreign exchange reserves and control the outflow of foreign
currency. This includes encouraging exports and foreign investments, as well as seeking
financial assistance from international organizations like the International Monetary Fund
(IMF).
Furthermore, there is an emphasis on enhancing agricultural productivity to ensure a stable
supply of food items. This involves investing in modern farming techniques, providing financial
support to farmers, and improving irrigation infrastructure.
Economic Outlook
While the government’s efforts are a step in the right direction, the economic outlook remains
uncertain. The global economic environment is highly volatile, with factors such as geopolitical
tensions, trade disputes, and fluctuating oil prices continuing to pose significant risks.
Domestically, structural issues like energy shortages, a large informal economy, and governance
challenges need to be addressed to achieve sustained economic stability.
Economists argue that a multi-layered approach is required to tackle inflation effectively. This
includes not only short-term measures to provide immediate relief but also long-term structural
reforms to strengthen the economy’s resilience.
Furthermore, enhancing social safety nets and implementing targeted support programs for
populations living below the poverty line can help mitigate the adverse effects of inflation. This
involves providing financial assistance, subsidies, and other forms of support to those most
affected by rising prices, ensuring that they can maintain a decent standard of living.
The Role of the Central Bank
The State Bank of Pakistan (SBP) plays a critical role in managing inflation through its monetary
policy. By adjusting interest rates and controlling the money supply, the central bank can
influence inflationary pressures.
In recent months, the SBP has taken measures to tighten monetary policy in an attempt to reduce
inflation. This includes raising interest rates to reduce borrowing and spending, thereby cooling
off demand-pull inflation.
However, monetary policy alone may not be sufficient to address the underlying causes of
inflation. Coordination between the central bank and the government is essential to ensure that
fiscal and monetary policies are aligned and mutually reinforcing. For instance, while the central
bank focuses on controlling inflation through monetary measures, the government can
complement these efforts by addressing supply-side constraints and improving the business
environment.
Public Perception
Public perception and confidence play a crucial role in the effectiveness of economic policies. If
people believe that the government and central bank are taking decisive and effective measures
to control inflation, they are more likely to adjust their expectations and behavior accordingly.
This can help in stabilizing prices and preventing inflationary spirals driven by speculation and
panic buying.
Building public confidence requires transparent communication and accountability. Therefore,
the government and central bank need to communicate their policies, objectives, and progress to
the public clearly. This involves regular updates on economic indicators, policy measures, and
their expected impact. Engaging with the media, civil society, and other stakeholders can also
help in building trust and ensuring that policies are well-understood and supported.
Long-Term Solutions for the Future
While immediate measures are necessary to address the current inflationary pressures, long-term
solutions are essential to ensure sustainable economic stability. This mainly involves addressing
structural issues such as improving productivity, enhancing competitiveness, and diversifying the
economy.
Investing in education and skills development is crucial for building a more resilient and
dynamic economy. By equipping the workforce with the skills needed for a modern economy,
Pakistan can enhance its productivity and competitiveness. This involves not only formal
education but also vocational training and continuous learning opportunities.
Improving infrastructure, particularly in transportation, energy, and communication, is another
key area. Efficient infrastructure reduces the cost of doing business, improves connectivity, and
enhances the overall economic environment. This includes investing in roads, ports, airports, and
energy projects to ensure a stable and reliable supply of electricity and other utilities.
Promoting innovation and providing opportunities for entrepreneurial ventures is also important
for economic growth. By creating an enabling environment for startups and small businesses, the
government can increase innovation and job creation. This involves providing access to finance,
reducing regulatory burdens, and supporting research and development.
The recent rise in weekly inflation in Pakistan after six weeks of decline is a stark reminder of
the challenges facing the country’s economy. While the government and central bank have taken
steps to address the issue, a comprehensive and multifaceted approach is needed to achieve
sustained economic stability. This includes addressing both short-term inflationary pressures and
long-term structural issues.
