So, it begins. Inflation has been high for a number of years now but the latest round owes in no small manner to Islamabad\u2019s own peculiar decision-making process. A few very impressive schemes of the previous PTI administration, like the health card, counted on large cash dole-outs from the government, put unnecessary pressure on reserves at a very critical time, increased the pressure to borrow more, and pushed prices to the upside.
\nShaukat Tarin\u2019s first budget as PTI\u2019s finance minister, which suddenly departed from IMF prescription, contradicted SBP\u2019s tight monetary policy and took a very expansionary fiscal position, also created false expectations and made investors lock deals that had to be rolled back when the mini-budget was presented.
\nAnd the decision to freeze petrol prices in February, for purely political considerations, inflated the current account deficit and also stalled the bailout program. The new PML-N led government, too, did not help matters with its own paralysis. It delayed the decision to raise prices to prevent a political backlash, only to bow to the inevitable after losing precious time. Inflation clocked in at 13.76 per cent in May, the highest in two-and-a-half years, yet this is only the beginning.
\nThe IMF has said that it will wait to see the budget before it decides to revive the EFF (Extended Fund Facility), yet whatever it does prices are sure to keep rising for the foreseeable future.
\nThat puts the people of Pakistan in a very precarious position. Inflation is rightly considered the cruellest of all taxes and in a country, with the fifth largest population in the world, it\u2019s now reached levels where a lot of people are without work and unable to afford their daily food.
\nThe state bank is forced to raise rates, of course, but when most of the inflation is cost-push, engineered demand destruction will have only a very limited effect. It seems we\u2019ll just have to live with very high prices till exogenous factors, like the commodity supercycle in the international market, turn in our favour.<\/p>\n","protected":false},"excerpt":{"rendered":"
So, it begins. Inflation has been high for a number of years now but the latest round owes in no small manner to Islamabad\u2019s own peculiar decision-making process. A few very impressive schemes of the previous PTI administration, like the health card, counted on large cash dole-outs from the government, put unnecessary pressure on reserves […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[8031,210],"class_list":{"0":"post-264140","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-editorial","7":"tag-high","8":"tag-inflation"},"yoast_head":"\n