Impact of rising inflation.

Byline: Syed Fazl-E-Haider

The Consumer Price Index (CPI) inflation in Pakistan increased by 8.8% in April 2019 as compared to an increase of 9.4% in the previous month and 3.7%, a year ago, according to the Pakistan Bureau of Statistics (PBS). The CPI increased by 0.1.3% month-on-month basis in April over previous month. The Wholesale Price Index (WPI) in April increased by 0.13.8%, and Sensitive Price Index (SPI) increased by 9.3% over same month a year ago.

The Asian Development Bank in a recent report forecast that Pakistan's GDP growth will slowdown further to 3.9% in fiscal year 2019 as macroeconomic challenges continue despite steps to tighten the fiscal and monetary policies to rein in high and unsustainable twin deficits. The report said, "Until macroeconomic imbalances are alleviated, the outlook is for slower growth, higher inflation, pressure on the currency and heavy external financing needed to maintain even a minimal cushion of foreign exchange reserves."

Devaluation of rupee against all major international currencies is the reflection of weakness of the economy. A rising dollar against rupee reflects the country's reliance on imported goods. The rupee is also in a free fall owing to the widening current account deficit, excessive government borrowing, drying up foreign flows, increasing oil imports, and repayments to the IMF.

The persistent depreciation of rupee is also fueling inflation. The high inflation will not only hit the poor hardest but it will also affect all segments of the economy. The poor and the lower middle class find it increasingly difficult to make both ends meet with soaring prices of essential commodities including foodstuff. The poor are highly sensitive to the price changes in food, particularly staple food items. Households struggling to meet the minimum standards of living might have no choice but to cut down their expenditures on health and children's education. Low inflation provides the central bank a cushion to slash its benchmark interest rate to spur economic growth. Soaring inflation has not only raised the credit price but also weakened the purchasing power of the people. The experts argue that higher discount rate and inflation is positively related. However, the solution lies to bring down food inflation with augmenting the supply of food, improving governance and distribution networks.

Present government continued to increase petroleum product prices for the last two months. The rupee...