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As A Result Of Inflation, The Economy Continues To Deteriorate

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As A Result Of Inflation, The Economy Continues To Deteriorate

(CTN News) – There is something absurd about waiting for inflation to taper, like Samuel Beckett’s Waiting for Godot. According to the headline number for September 2023, the rate is showing no signs of taming.

The CPI has increased by 2 percent month-over-month, and the average monthly increase has been 2.4 percent in the past three months. As compared to 1QFY23, inflation in 1QFY24 was 29 percent versus 25.1 percent.

Accordingly, there is a fresh wave of high inflation, primarily due to an increase in energy prices – electricity and petroleum – and the emergence of second-round effects (increases in wages and price behavior).

It is interesting to note that the second-round impact is greater in rural settings than in urban settings.

Inflation in the rural segment stood at 27.3% (12M moving average at 22.9%) while it was 18.6% (12M moving average at 17.4%) in the urban segment. Rural areas are more affected by this spell of inflation (for the past 1-2 years) as it is due to the shock in commodity prices.

Conversely, asset prices (as indicated by modest increases in house rent and real estate prices) are taming inflation. Therefore, urban areas are less affected by this phenomenon.

Possibly, wages are increasing more in rural areas as a result of better crop prices for sugar, wheat, and other commodities.

As a result, overall inflation (since May 2019) has been significantly higher in rural areas – the price index has increased 2.1 times in rural areas versus 1.9 times for urban dwellers in the same period,

Owing to the higher weight given to food inflation in rural areas.

In rural areas, where media coverage is limited, the pinch is felt more acutely.

Food prices increased by 1.6 percent on a monthly basis in September, primarily due to seasonal increases in perishable food items – up by 7.5 percent, with onion prices on top. Sugar topped the list of non-perishable items with an increase of 10.3 percent in urban areas and 12.5% in rural areas.

In the transportation index, there has been the greatest increase – it is up by 9.1 percent, and once again the rural transportation index is higher with an increase of 11.3 percent, while the urban transportation index is up by 7.8 percent.

It is primarily due to the dramatic increase in fuel prices caused by both the depreciation of the currency and the sudden increase in the price of oil worldwide. It is likely that the appreciation of the currency last month will negatively impact transportation in October.

As a result, many other sub-indices have increased as a result of the second round impact. Health has increased by 4.5 percent over the previous month and by 25.3 percent over the same period last year.

In the following year, clothing and footwear showed a monthly increase of 2.1 percent, and a yearly increase of 20.5 percent.

Additionally, an increase in other indices is already evident – for example, the yearly increase in recreational & culture, miscellaneous restaurants, and hotels is at 58 percent, 36 percent, and 34 percent, respectively.

In spite of this, overall inflation appears to have peaked in FY24. An increase in oil prices and a sudden drop in the currency could result in new inflationary pressures.

It is likely that SBP’s medium-term inflation target of 5-7 percent will remain elusive if there is no significant movement in the currency during the second half of the fiscal year.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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