Inflationary pressures will persist in FY23

ISLAMABAD: Inflationary pressures will persist in the current fiscal year 2022-23, with consumer price index (CPI) inflation hitting a chilling 21.34% in June, despite ‘perpetual manipulation’ wheat flour price pricing data in Punjab and Khyber Pakhtunkhwa.

Accumulating inflationary pressures will persist as inflation based on the Wholesale Price Index (WPI) jumped to 38.9% in June 2022.

Thus, inflation will rise further when prices move from the wholesale to the retail stage after a lag of one or two months.

Second, the revised budget documents for 2022-2023 show that the government has increased the oil tax target from Rs 750 billion to Rs 855 billion for the current financial year.

In a context of rising inflation, there is no justification for increasing the oil tax to Rs 50/litre. The government had already imposed a petroleum tax of Rs 10/litre on petrol and Rs 5/litre on diesel and other products from July 1, 2022. The government will collect Rs 15 billion on a monthly basis at this oil tax rate.

If there is no alleged manipulation of pricing data, CPI-based inflation could reach 23 or 24% for June 2022.

Experts have continually raised interesting observations regarding the calculation of pricing data by the Pakistan Bureau of Statistics (PBS), but so far have failed to capture the attention of those who matter.

The price of wheat flour averaged over Rs 1,200 per 20 kg/bag.

Official data showed that the price of bag of wheat flour hovers around 980 rupees/20 kg bag in Peshawar as the minimum price and in the vicinity of the same city, its maximum price exceeded 1,600 rupees/bag. Is such a huge difference in the price of an item in the same city possible?

Interestingly, the price of a 10 kg bag of wheat flour in Gujranwala is Rs 700, higher than Rs 682/10 kg in Bannu and Hyderabad. When the price of a 20 kg bag of wheat flour is 980 rupees all over Punjab, then the price of a 10 kg bag of wheat flour may be 700 rupees/bag in Khyber Pakthunkhwa.

This clearly shows that something is wrong with the price data. The minimum price of a 20 kg bag of wheat flour is Rs980, while its maximum is over Rs16.00/bag. This huge price variation in the city of Peshawar warrants investigation. In Karachi, the price of a 20 kg bag of wheat flour is Rs1,500 to Rs1,700. There is a differential of Rs600 to Rs720 per bag in Karachi and Gujranwala.

However, experts believe that import-driven inflation will continue to rise in the short to medium term. It will not slow down until the productivity and efficiency of the neglected agricultural sector are dramatically improved.

Dr Khaqan Najeeb, a former adviser to the Ministry of Finance, said the June 2022 inflation data surprised on the upside, especially the SPI at 32% and the WPI at 39%. “Managing inflation beyond monetary tightening is a major challenge for the government in order to relieve the population. In the short term, vigilant monitoring of the supply of major food items is important to manage food inflation,” Dr Najeeb said.

He stressed that the government should also guarantee the supply of cheaper fuels, ensure that there is no undervaluation of the rupee and limit the rate of monetary expansion.

“Serious work is needed to improve the productive capacity of the industry and agriculture sectors if the country is to bring inflation under control in the medium term, while the same is needed for food import substitution. , replacement of imported coal with Thar coal by improving power to existing power stations and gasification of coal to substitute coal for gas Moving to targeted subsidies is crucial to ensure that the consumption model is redesigned.

Dr. Najeeb explained that in the electricity sector, the country seriously needed to move to a competitive market model. Government intervention must be limited to improve the functioning of markets, he said.

“We have to realize that public enterprises (public enterprises) are a drag on the economy and are partly the cause of high tariffs due to their inefficiencies leading to high inflation. But privatization or restructuring have both been slow and inefficient.

“If serious action is not taken, these problems would keep the country in an inflationary spiral, but the hope for such serious action remains limited at best,” he concluded.

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