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Editorial

November 5, 2018
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Rising inflation

Editorial

November 5, 2018

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Inflation hit a four-year high in October as the expected impact of the rupee devaluation and gas price hikes took its toll. On a month-on-month basis, prices increased by 2.56 percent for the month of October. The annual inflation rate has jumped to around 7 percent compared to 5.1 percent last year. The inflation figures confirm that this is going to be a difficult year for ordinary Pakistanis. Price are considered to be sticky for most items – and they have not risen enough yet compared to how much the rupee has depreciated. The rupee depreciation of around 30 percent should slowly make its way into how everyday commodities are priced. Conjoined with the 105 percent increase in gas prices, the next months are going to be more troubled. The State Bank of Pakistan has already warned that rising oil prices are also going to play a part in pushing prices up. Ogra has recommended another 10 percent increase in petroleum prices, which is going to push a further rise in inflation next month.

There will be a further impact once Pakistan enters into an agreement with the IMF. The lender has already asked for an increase in the cost of basic public utilities. One must wonder whether there is a fear of hyperinflation amidst the economic chaos. The economic crisis the country has been facing has been somewhat tamed after an agreement with Saudi Arabia – and an expected one with China – but the fears over inflation and more misery for ordinary people are real and justified. The SBP has pointed to the increase in money supply, which has crossed the 46.5 percent of the GDP. This is an alarming high number, which led to the central bank increasing interest rates in the hope of controlling money supply. However, the SBP has insisted that this could only work amidst extreme fiscal discipline. The PTI’s austerity agenda falls in line with this. But without the correlation of economic growth, the policies are likely to be in vain. The SBP will need to ensure money supply is controlled amidst the rupee depreciation in order to keep prices in check. Without keeping money supply in check, there is a risk that the inflation could go into overdrive.

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