With April inflation likely to clock in at 0.5 percent year on year, the average inflation for the year to an average so far of 4.87 percent, which is a major improvement on the 26.22 percent observed during the same period last year. And while the short-term trend, the 0.8 percent decline from February, month-on-month, may be of benefit to the government, it is not necessarily good news, especially when combined with developments on the international scene. The government’s claim of success depends on its having tamed inflation, but it has not been able to claim the political benefit, probably because the last bout of inflation left prices so high that even their not growing any further has not brought about enough relief for the voter to sit up and notice.
One problem is that though prices have begun slipping, there has not been any growth in income. The latest figures for large-scale manufacturing, up to January, showed a 1.8 percent contraction over the previous year, showing that the economy has not returned to a growth path. The international outlook has deteriorated considerably since the tariff announcement by US President Donald Trump. With Pakistani exports to the USA widely expected to take a hit. A resumption of a growth path will require some new initiative. The tariffs may have already precipitated a worldwide recession, which may worsen into a depression. Recessions see falls in prices, and jobs are at a premium. Within this context, price declines are not really a healthy sign. The State Bank of Pakistan, which has brought its benchmark rate down to 12 percent from 22 percent, made no change in the last meeting of the Monetary Policy Committee, may need to revisit its attitude in its next meeting, for while avoiding inflation is no doubt a priority, driving the economy further away from a growth path is equally dangerous.
So far, Pakistan has not been infected by anyone else, and the indication of where the world, and along with it the country, will go, is yet to come from the US Federal Reserve. However, the recent cut in electricity tariffs, and the anticipated fall in fuel prices as a worldwide recession is expected to cut oil demand, should mean that inflation falling will be noticed by the consumer. That can only be good news for the government.
