- Inflation kicks in and fuel prices go up
The chickens have begun coming home to roost. CPI inflation in July, the very first of the new financial year, was recorded at 10.34 percent, the first time since November 2013. This occurred even though the latest round of fuel price increases, which have taken petrol to Rs 117.83 per litre, and raised diesel about five percent, only applies from August 1. It seems that previous increases have led to this inflation, along with increases in gas and electricity tariffs. The latest fuel price increases have occurred despite an easing of the international oil price, and are because of the imposition of taxes, like the general sales tax. These tax increases were agreed by the government in the hope of getting an IMF package. As if that was not enough, the IMF, while granting the package, has tagged a rider: that Pakistan must stay off the FATF black list. The knock-on effect of the fuel price hikes may be included in the official target of 11 to 13 percent inflation for this fiscal year, but that is yet to be seen. As a phenomenon, inflation has a large psychological component, and can easily increase too rapidly to control.
Because of that, the government should come clean. Former Finance Minister Asad Umar, who was the architect of the IMF package, but who was sacked for his pains, proved his loyalty to the PTI by telling a private TV channel that the inflation that inflation would peak over the next few months, and then go down slowly. However, that did not provide much hope to fixed-income earners, mostly the salaried class, who would be concerned about the havoc inflation would wreak on their lives without any increase in income. Instead, the government should be forthright about the negative effects that are to be expected because of the IMF package. Not only would the ordinary citizen be better prepared, but the government would get more cooperation.
The government has a tough task to carry out. Indeed, it is possible that if things go wrong, which they can quite easily, that the economy would be in poor shape when next the PTI goes to the hustings. The PTI should not forget that it won the last election because it held out hope.
