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Price Spiral

Impact of Covid-19 and a poor-performing economy combined to create food and utility
price inflation in Pakistan. There is some hope for recovery in the coming years.

By Dr. Khwaja Ali Shahid | December 2020

price-spiral

Saleema, 55, a housemaid in a middle-class family, requested for increase in her salary claiming that both her sons-in-law had lost their jobs at their respective companies and she had to support them. Mrs. Maira, however, was in a fix. She was often helping her maid with monetary support even in these bleak times, in addition to her regular salary; but it was also true that her husband faced huge losses in his business and her son’s salary was drastically cut; his career in the organization also hanged in the balance.

The data made available by the Pakistan Bureau of Statistics (PBS), unveils that Food Inflation remained between 10.4% and 19.5% in urban areas while in rural areas it ranged between 12.6% and 23.8%. Food inflation in Pakistan has been in double digits since August 2019, a sad statistic which is self-explanatory in nature. Multiple factors brought us to the current state of affairs.

The sons-in-law of Saleema were not the only ones. More than 10 million Pakistanis were left jobless, piling on to the miseries of those families who have already been crushed under the surge of food inflation. Indeed, a vicious cycle pursued with joblessness, increased prices, reduced availability and shortages, removal of subsidies and imposing of surcharges and, most importantly, lack of experienced personnel making sound decisions at the helm of affairs; all aspects leading to an overall collapse.

Massive influence came from the dollar rates that soared from Rs.110 at the beginning of 2018 to beyond Rs.160 in 2020 - an increase of almost 45 percent in less than 2 years. All imports were directly impacted. Once even the Prime Minister claimed that he himself was not aware of the increase in the dollar rate! There was panic buying of dollars and there was a time that it was extremely difficult for the end-consumer to get foreign currency from any currency dealer at the prevalent rates. The imports were consciously decreased to strengthen the rupee against th dollar and also to reduce the current account deficit. Increasing exports resulted in shortages and increased prices locally.

In the last two years, the crisis due to shortages, increased prices and mafia activity in some of the staples such as wheat, sugar and even vegetables like onions and tomatoes, ruled the headlines. The prices of lentils, dairy products, bakery items, eggs, poultry and other meat products leapfrogged as there was absolutely no check and control on the official prices; instead there was a huge disparity between official and actual prices of almost all commodities. Federal and provincial governments and local authorities were not on the same page.

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Khwaja Ali

The writer is a physician, healthcare leader, traveller and writer. He tweets as @Ali_Shahid82 and can also be reached at kalishahid@hotmail.com

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