Though the direction of events should lead not just to a controlling of inflation, but an actual decline in some prices, the latest figures from the Pakistan Bureau of Statistics show that inflation measured by the Sensitive Price Index is running at 41.66 percent, the sixth consecutive montbat that it remained at over 40 percent, For a country predicted to have low growth, this means a stagflationary scenario. However, the inflation rate seems not to be responding to the international decline in commodity prices, nor the decline in fuel prices, nor the appreciation of the currency. The continuation of wheat imports meant that there was less wheat imported at a lower price. While wheat imports went down from $ 460 million to $308 million in the first five months of the current fiscal year; the shelf price of flour does not reflect the decline. The price may have been revised downwards by millers, but there has been a recent upward revision of Rs five per kg.
The price of fuel, and thus of transport, including that of people, should have gone down with the world price of oil, but the main decline should have occurred because of the reversal in the decline of the rupee, which had sunk to Rs 307.10 to the dollar by September 5, but which had recovered to Rs 276 by October 16. It has once again declined, and the dollar was selling in the open market at Rs 285.20. Clearly, inflation is far from under control.
The State Bank’s benchmark overnight lending rate has now been at 22 percent for a long period, and cannot be said to have the anti-inflationary effects it was supposed to. It may have squeezed credit for the private sector, and thus allowed the government access to credit, but the punitive interest rate has meant a ballooning of government borrowing. That borrowing has meant a soaring of domestic debt servicing costs, with the government in the dangerous position of having to borrow to meet interest payments. The new government will be selected by the voter on the basis of its perceived ability to bring down inflation.It will have to introduce measures to continue this development if it hopes to avoid a reaction from the voters, which will show itself long before the next accounting at the hustings.
