The inflation figures are horrendous, and not just because the government faces a general election this year. March saw the Consumer Price Index up 35.4 percent year-on-year, compared to 31.7 percent in February, and 12.5 percent in March 2022. This is the worst figure for March since 1965, as Pakistan headed towards war with India later that year. The predictions are that this rate will be maintained for another two months, and the slowing of inflation after June would be because inflation slowed down, as because of the arithmetic effects of having a high base. Making matters worse for the hard-pressed consumer is that Ramazan has had the effect of worsening matters. The inflation figure’s main component is food inflation, which was up 47 percent year-on-year. Transport witnessed a 55 percent increase year-on-year, both because of higher petrol prices, and increased car prices. Both hikes can be ascribed in the fall of the rupee against the dollar.
Much of the inflation is imported, in the shape of higher fuel prices. Though there has been a fall in the international oil prices, it has not been enough for the government to pass on more than a token cut in the month’s price fixation. Most prices were kept unchanged as the government tried to raise revenue to meet the demands of the IMF for the tranche that has not been released. One conclusion that can be drawn is that the hikes by the State Bank in the interest rate, which is now at 21 percent, have not worked Whether that is because the hike has not been big enough, or whether the economy does not work the way textbooks say it should work, the State Bank’s Montary Policy Committee is likely to go for another big hike.
That hike might not contain inflation, but it will probably drive many businesses, already on the ropes, into default as they cannot afford to service such expensive debt. The resulting higher unemployment would keep down purchasing power, and act as a further drag on industry. Perhaps the worst aspect of the whole sorry affair is the haplessness of the government. While it concentrates its whole attention on avoiding a default, it seems it runs that risk because of lackadaisical fiscal management.
