OPINION
Uzair Younus
The challenge of inflation
medium- and long-term inflationary pressures, especially if tensions in Europe and the Gulf do not ease any time soon. If global oil prices remain stubbornly high, the government will have to both dramatically increase prices in the near-term and force the State Bank of Pakistan to allow a sharper depreciation of the rupee, which would lead to second- and third-order inflationary effects in the economy. Inflation remains a near and a This then would mean that the political benefits of near-term “relief” future challenge to the masses would be swept away by citizen anger over sky-high inflation in the run-up to elections. The smarter political choice then would have been to allow nflation has continued to plague the economy for several domestic prices to reflect reality, make the argument that the govyears now, significantly eroding household purchasing powernment has no choice on this matter given that the country is an er and pushing millions of citizens towards poverty. The importer of energy, and make the relief argument by expanding the emotional and physical trauma of rising prices is unimagEhsaas cash transfer umbrella to provide relief to the most margininable, and its broad impact has been a key reason in erodalized citizens of the country. Such a strategy would also leave the ing the popularity of Imran Khan’s government. This is one door open for the government to sharply cut petroleum prices should reason why the prime minister has asked Pakistani corporations exogenous factors turn in the favor of the government, meaning that to “raise their employees salaries.” The most recent data released the Russians ease up on Ukraine and the Iranians stop their belligerby the government does not signal a near-term end to the pain, and ent actions. with Russia knocking at Ukraine’s borders, exogenous factors may Then there is the issue of food inflation, which continues to further complicate the situation for Khan’s government. be high on a year-on-year basis but is showing some signs of calm; According to January 2022 data, inflation measured by the however, month-on-month food inflation, which declined by 0.45 consumer price index increased by 13 percent on a year-on-year percent in January 2022, may spike up once again in the coming basis. CPI comes in at a red-hot 13 percent. Urban food prices weeks. This is mainly due to the fact that wheat output may be increased by 13.3 percent while rural food prices were up by 11.8 missed, with farmers in Khyber Pakhtunkhwa pointing out that percent. The Sensitive Price Index, which measures inflation in a a fertilizer shortage may impact the province’s wheat production narrower basket, showed an alarming increase of 20.9 percent and by up to 40 percent. This miss in expected output, coupled with a the Wholesale Price Index, which one could argue is a forward dramatic humanitarian crisis in Afghanistan, could lead to an adverse indicator of consumer prices, registered an increase of 24 percent. impact on wheat prices in Pakistan. A shortage of wheat would then It is for this reason that Prime Minister Khan “rejected” a mean that Pakistan needs to import to meet local demand at a time summary to increase petroleum prices by 11 rupees per liter – this when the crisis in Ukraine is pushing international wheat prices to decision has been taken, according to the government’s spokesmen near-record levels. and supporters, to provide “relief” to the masses. Both the economWhat all of this means is that there is a strong likelihood ic and political logic of this decision is flawed: on the economic that Pakistani citizens are likely to face a lot more economic pain front, keeping prices stable in the near-term will only increase before things get better. And with elections around the corner, Imran Khan’s government will face increasing criticism for sky-high inflation. Based on the government’s past narratives, it is likely that spokesmen will come up with all sorts of novel arguments to defend the government. However, a citizenry that has faced rising inflation for months on end is unlikely to be in a The writer is Director of forgiving mood. the Pakistan Initiative It is for this reason that Khan’s advisors ought to provide a more comprehensive strategy to the prime at the Atlantic Council, a minister. This strategy must go beyond near-term gimmicks, such as the provision of “relief” to the masses Washington D.C.-based through the prime minister’s interventions on petroleum prices. Such actions, as argued above, will only think tank, and host of lead to more pain at a time when the ruling party needs to avoid such criticisms. the podcast Pakistonomy. As elections draw near, perhaps the best course of action for the prime minister and his team is to He tweets @uzairyounus. pray that Russia backs off Ukraine, that the Iranians go easy on the Gulf, and that the global economy slows down. The combination of these factors is likely to lead to a sharp decline in international commodity prices including oil and provide much-needed relief to the prime minister and his party. n
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