Economic jargon occasionally frightens people, and Pakistani politicians, like those in most other nations, frequently exaggerate difficult statistics to present a false picture.
For the majority of us, a comparable circumstance happened following the arrival of the typical month to month expansion rate for September, which showed a 44-month low.
Everyone seems to be happy that inflation has been controlled, which has led to lower prices, from the upper echelons of the government that is currently in place to party workers.
The typical month to month expansion rate in September was 6.9 percent, the most minimal since January 2021 (5.7pc).
According to the Pakistan Bureau of Statistics, the average accumulative inflation rate over the last 44 months increased by 83.13 percent, reflected in the retail prices of all consumer goods, particularly the 17 items mentioned in the table. There are a lot of things that could be improved about the CPI methodology, which currently does not actually capture the cost of living in real terms. There are a lot of things that could be improved.
Parties in the decision alliance gained by the lessening in the expansion rate to construct a story that the typical cost for most everyday items had descended fundamentally, because of their strategies. Be that as it may, there is a lot to unload in this case before we can really celebrate.
Inflation averaged 9.2 percent for the first six months of FY21 (January to June), 12.5 percent for FY22, 29.18 percent for FY23, 23.41 percent for FY24, and 9.19 percent for the first three months of FY25. The information shows an ascent in costs since January 2021, going against the public authority’s statements that costs have declined.
The Consumer Price Index (CPI) is used to measure average inflation in Pakistan and other nations.
While deflation, which is the opposite of inflation, occurs when general price levels fall, the current scenario is one of disinflation. Disinflation refers to a decrease in the rate of inflation.
Miftah Ismail, a former finance minister, claims that politicians frequently confuse people when they translate inflation rates. Although he stated that the rate at which prices rise has slowed, this does not mean that the level of prices has decreased. Mr. Ismail goes on to say that the strong base effect from last year and falling international commodity prices were primarily to blame for the low rate of inflation in September.
Since the government has not reduced its own expenditures, the former minister questions the government’s role in lowering inflation. LNG, wheat, urea, and DP fertilizer prices as well as oil prices decreased on the international market. In addition, lower demand has resulted from the highest interest rate ever. Mr Ismail is worried that any ascent in worldwide oil costs will make expansion ascend to 11-12pc in the following three months. He asserts that the government’s exaggerated claims are baseless and that it has not taken any concrete steps to slow inflation.
On the other hand, there may have been a decline in some products in September 2024 in comparison to the previous year. Wheat and its items, cooking oil, sugar, petroleum, diesel, and power, all had lower retail costs than the earlier year.
The Sustainable Development Policy Institute (SDPI) executive director, Dr. Abid Suleri, explains that the government’s claim of lower inflation is technically correct.
However, the result of the method used to calculate inflation does not necessarily indicate that prices have decreased; When compared to the previous year (year-on-year comparison) or month (month-on-month comparison), all it demonstrates is that prices have increased or decreased by a certain percentage.
Prices would rise by 6.9% in this scenario to September 2024 from September 2023.
Dr. Ashfaque H. Khan, a former economic adviser, discusses the distinction between inflation and commodity prices. He asserts that a decrease in inflation only reflects the rate at which commodity prices are rising, not a fall in their value.
In previous years, the rupee exchange rate fluctuated wildly, but in recent months, it has become relatively stable. The global market is also experiencing a downward trend in oil prices. Additionally, the price of wheat has remained fairly stable due to bumper crops.
It gives the impression that inflation has slowed when these factors are combined with a high interest rate, which, according to Dr. Khan, also drives up the cost of borrowing money and, as a result, the cost of capital.
The problem with electricity There are a lot of things about how the CPI is calculated that could be improved, and one of the most obvious examples is how much natural gas and electricity are used in homes.
The CPI index only takes into account changes in power bills for people who use less than 50 units. Because this small amount of electricity falls under the “lifeline” category, which has been protected by previous governments from major tariff changes, the index does not accurately reflect how power costs affect the average consumer.
To put things into perspective, this group of customers pays Rs6.48 per unit, a price that has remained constant for a number of years.
The per-unit base cost for power utilization somewhere in the range of 51 and 100 units is Rs7.7, while the rate expanded to 39.15pc for the 301-400 unit section, 42.78pc for the 500-600 unit chunk, and 48.84pc for those utilizing in excess of 700 units.
To be clear, taxes, fuel adjustments, and other overhead costs that have significantly increased power costs in recent months are not included in these tariff prices.
When determining the cost of living, rising production costs are not the only factors to take into account.
As per Dr Ashfaque H. Khan, there are four variables of creation: raw materials, energy, capital, and labor.
Electricity and gas prices have risen frequently over the past two and a half years. The expense of imported unrefined components is likewise ascending because of depreciation. The high interest rate raises borrowing costs, which in turn drives up production costs, which are then passed on to customers.
As a result of the decline in purchasing power, calls for increases in private and public sector employees’ minimum wages and salaries are made, which only raises production costs. According to him, people’s purchasing power declines as inflation rises, putting them under tremendous pressure.
