Middle class and prices


Sudden increase in prices of petrol, CNG, mutton, chicken and eggs is pretty much all it takes to choke the middle class, effectively the life and blood of a market economy. This is not to imply that upper and lower income groups are immune to price shocks, just that the middle group contributes more meaningfully to overall economic growth, and hence is most responsive to government policy. That prices of these items are on a concerning uptrend again is indicative of further price, spending, investment and saving pressures down the road. That we approach such a situation in times of already uncomfortable stagflation and unemployment implies the economy is likely to need a lot more aid than decision makers tend to acknowledge.
There is little likelihood that PhDs in the finance ministry and planning commission are not aware that Pakistan’s only safe bet is to grow out of the present situation. There can be no other credible arrangement. Yet there seems little pressure on Islamabad’s real power circles regarding a visible government posture that deters growth. In the money market, the government’s incessant borrowing has eroded credit market solvency for private sector expansion, with its subsequent negative spillover on employment and consumerism. On the fiscal side, Islamabad’s inability to move on the PSE issue – whether turnaround and strategic privatisation or improved management and cutting losses – continues to drain the national exchequer of approximately Rs400 billion annually. With growth chronically low and jobs scarce, whatever consumer activity remains will be sliced by high prices.
There is also an interesting, non-economic angle to middle class disappointment. Being the biggest chunk in most democracies (developed ones anyway), they also form the largest vote bank, which is why most official policies are framed with the middle class as the predominant target market. The more it finds faults with government policy, the louder its sentiment will resonate come vote time.