How to curb the genius of inflation in Pakistan

The phrase “Nothing can be said certain except death and taxes” is attributed to Benjamin Franklin and is widely accepted as true around the world. But in Pakistan, the term taxes can be excluded and replaced by inflation (mehangai in Urdu).

Since independence, inflation to varying degrees has been a constant in the national economy. The price of international commodities like gold, silver, gas, petroleum products, etc.) fluctuate up and down depending on the international market.

Read more: Unusual and unprecedented food inflation in Pakistan – What is driving it?

The rise in consumer price index (CPI) which is represented by a theoretical basket of goods, including consumer goods, services, medical care, and transportation costs, however, is inevitably on the rise – once prices rise, they rarely fall .

The genie of inflating when taken out of the bottle cannot be put back in place – the key, therefore, is to control the rate of release. Economists believe a modest inflation figure indicates a healthy economy and deflation, where the CPI is negative, could prove to be bad.

Given these economic fundamentals, the government should not be expected to lower the CPI, but rather that its rise will be kept at a manageable level.

Read more: Pakistan’s economic recovery remains fragile, World Bank

Reduce the negative impact of inflation

The prices of goods and services by themselves are not precise indicators of the strength of the economy. For example, the cost of a liter of fuel in Pakistan today is around 108 Pak rupees while in the UK it is around 1.33 pounds sterling (around 300 Pak rupees).

Based on the purchasing power parity formula, the per capita income of UK citizens is around eight times that of Pakistanis, meaning that for UK citizens the cost of fuel is actually about about a third of what it is for the people of Pakistan.

Read more: Pakistan’s credit profile reflects economic strength: Moody’s

In the free hybrid economy that exists in Pakistan, the state should only control the prices of items over which it has an exclusive monopoly (gas, fuel, electricity, railways and a few others in Pakistan) and the rest Pricing should be based on the market forces of supply and demand.

The state, however, must ensure the stability of the currency and take concrete steps to prevent hoarding, smuggling and cartelization by private entities. Inflation would then hopefully remain under control.

To reduce and offset the negative impact of inflation, the key would be to improve the purchasing power parity of one’s currency by increasing the national income per capita. Our economists have listed the steps and measures needed to achieve higher per capita income, and these must be implemented in letter and spirit.

Read more: Pakistan economy progress map

Air Cdre (retired) Jamal Hussain served in the Pakistan Air Force from 1966 to 1997. He was awarded Sitara-e-Basalat for his service in 1982. He regularly contributes articles on defense issues in the Pakistan’s Defense Journal, Probe Magazine (Dhaka – Bangladesh) and national newspapers including Dawn, The News and The Nation. He is the author of two books on “Air Power in South Asia” and “The Dynamics of Nuclear Weapons in South Asia”. The opinions expressed in this article are those of the author and do not necessarily reflect the editorial policy of Global Village Space.

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