‘Low inflation’ claims fall flat as citizens feel the pinch

MOHAMMAD Altaf is not convinced by the government’s claim that inflation is declining; the daily wage labourer insists that a mere decline in flour prices cannot be termed relief when the prices of other essentials have spiralled out of control.

Altaf, who hails from Nathiagali, a hill station in Khyber Pakhtunkhwa, has been selling vegetables on his pushcart in Karachi for the past 25 years. He shares a two-room 80-yard portion with three housemates, for which they collectively pay Rs12,000 in rent every month.

The power utility, K-Electric, sends him a bill of Rs10,000-12,000 per month for running “two to three LED bulbs and two fans” in the house, while three meals a day cost him between Rs800 and Rs1,000.

Along with three to four people, the vendor purchases vegetables for up to Rs10,000 every day and also plays around Rs400 to transport them from the Super Highway vegetable market to wherever he will be hawking his wares that day. The shopping bags alone cost him Rs500/kg.

Consumers say essentials still remain out of reach

In addition, Altaf sends Rs30,000 every month to his family in Nathiagali, which he says is “insufficient” due to rising costs. “A year ago, I used to send Rs20,000-22,000 a month,” he mused, saying that would be enough at the time.

Likewise, a tailor charges Rs2,000 to Rs2,500 to stitch a shalwar kameez suit, while prices of other basic items, like soap and washing powder, have gone through the roof. During the past year, the costs of the most items has risen by at least 30-40 per cent, particularly due to high power bills. In such an environment, a baffled Altaf asks, “how is the government claiming inflation is falling?”

Faisal Ahmed, who runs a laundry business, says he has no option but to charge Rs40 to iron clothes and Rs80 for washing and ironing, because of high energy costs. This represents a Rs10 increase in his rates per item, but even then, he says it is difficult to get by. His shop rent is around Rs16,000, and the power bill ends up being almost just as much..

Usually, vegetable prices decline during the winter season, but this year, they have remained high because growers, middlemen, wholesalers, retailers, and distributors have increased their profit margins to cover the rising cost of living.

Sensitive Price Indicator

As per Sensitive Price Indicator (SPI) data, the national average price of a 20kg bag of flour fell to Rs1,580-2,200 in the third week of December, from Rs2,666-2,960 at the beginning of the year.

But the price of a one kg packet of ghee has risen from Rs470-575 to Rs545-575. The price of gram pulse (daal chana) is now Rs330-470/kg, compared to Rs220-300/kg in January. The rate of one kilo of mutton and beef (average quality with bones) is Rs1,550-2,400 and Rs700-1,300, compared to Rs1,400-2,200 and Rs600-1,100, respectively, in the first week of January.

As per the official data, the prices of a 10kg wheat bag and fine flour (1kg) prevailing in the first week of January 2024 were Rs1,247 and Rs156, respectively, compared to the current rate of Rs809 and Rs111. Even though the diesel price has come down to Rs255 from the Rs276 per litre in January, its impact is not visible in the supply chain.

‘No actual decline’

Top Line Securities CEO Mohammad Sohail said that while “price increase in the percentage of basket of commodities is down, there is no actual fall. That is why the common person’s view is different from the point of view of economists”.

Samiullah Tariq, head of research and development at the Pak Kuwait Investment Company, explains that a decline in inflation figures just means a lower rate of increase in price levels; it does not mean a reduction in actual prices of items.

Karachi Wholesalers Grocers Association Chairman Abdul Rauf Ibrahim said only wheat and flour prices witnessed a reduction due to higher yield and import over the past year, but the prices of other essential items have remained high.

Even in the case of the one item that has become cheaper, consumers are not able to get wheat flour at lower rates. For example, the retail rate of Flour No. 2.5 is Rs110-120/kg in Karachi, despite its wholesale rate being Rs82/kg, while the city government has fixed its price at Rs90/kg.

The wholesale rate of fine flour is Rs90/kg against its retail rate of Rs120/kg, while the official retail rate is Rs95/kg. On the other hand, ‘Chakki Aata’ sells at Rs130/kg against its official rate of Rs115/kg.

“The government needs to take notice [of such practices] at the retail levels, where consumers do not get any benefit despite the price fall in the wholesale market,” Mr Rauf said, adding that most consumers are easy targets because they are not aware of trends in wholesale prices.

He claimed the regulators usually introduced ‘unrealistic rates’ without stakeholders’ input, which also creates a “huge price disparity” in the market. He urged the government to start issuing price lists of medicines, or at least upload them on the official website of the health ministry, since a significant price difference existed between the wholesale and retail rates.

Mohammad Tahir of Sherman Securities said the Consumer Price Index (CPI) may clock in at 4.5pc in December 2024 year-on-year (YoY) compared to 4.9pc YoY recorded during the previous month, citing a base impact coupled with a flat food index and a decline in the transport index. On a MoM basis, CPI is expected to increase by 0.4pc MoM in December 2024.

The food sector is expected to increase by 0.3pc YoY in December 2024. On a monthly basis, the food index is projected to remain flat. This flattish trend is primarily attributed to a decline in the prices of wheat, chicken, pulses, tomatoes, and rice, while the prices of eggs, cooking oil, potatoes, and fruits have increased, he said.

The State Bank of Pakistan (SBP) may further reduce the policy rate by another 200bps during FY25 ending in June. The CPI has settled within the SBP’s medium-term target range, and the real interest rate (RIR) remains significantly high at around 8.6pc in December 2024.

The policy rate may average 14pc during FY25, with a year-end rate of 11pc, while the average inflation for FY25 will range between 6.5-7pc, maintaining the RIR of 4.5pc. This aligns with the International Monetary Fund’s recommendation to maintain a positive RIR to keep inflation in check.

Published in Dawn, December 27th, 2024