Although the data released by the Pakistan Bureau of Statistics (PBS) shows that inflation eased to 8.4 percent in the month of July as compared to 9.7 percent in June, this is unlikely to form into a trend in the coming months owing to the depreciation of the rupee in the last few weeks and hike in energy prices. While a drop in prices of agriculture products contributed to better inflation figures in July of this year, which is also a marked improvement over last year’s figure of 10.47 percent in the same month, it is unlikely to remain on a downward trajectory as prices of imported goods and input costs that are positively correlated with changes in prices of petrol and energy continue to increase.
Last month, the government removed subsidies provided to utility stores, which is how it intervenes in the setting of prices for the ordinary man, even for the many who do not shop at utility stores. The effects of that IMF-driven decision will become visible in next month’s inflation figure. As demand for dollars continues to rise strongly due to importers’ pressure, the oil prices surge and a current account deficit that has replaced a 11-month-long surplus persists, the rupee will remain under pressure for the foreseeable future. One advantage that the country perhaps did not have last year are sizeable foreign exchange reserves amounting to $25 billion currently, but it remains to be seen whether or not the SBP will be willing to use these funds to intervene in the interbank and open exchange rate markets to ease off the pressure on the rupee.
Consecutive petrol price hikes do not bode well for the common man either. For businesses, it becomes an additional cost that they pass on to consumers, which will have an adverse effect on already squeezed and reduced household budgets. The PTI government is apparently capable of achieving small short-term economic victories yet it is unable to provide the long-term economic relief that was promised to the masses in the 2018 general elections. None of the intermittent improvements in macroeconomic indicators that are celebrated by this government are enough to bring about actual tangible improvement in the financial health of the general public that continues to suffer under the burden of rising prices, lowered incomes and joblessness.
