Millions of Pakistanis say they have been forced to cut down on the costs due to the extreme level of inflation. Many Pakistanis have been forced to cut down on electric costs as they are facing it hard to survive let alone have spare cash.
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- Pakistan traders hold nationwide shutdown over electricity bills and increase in prices
- Government says no relief in power bills for people
Inflation And Its Problems
Among the conditions that have been laid out by the IMF for the package was a demand to remove the government’s subsidies on fuel and electricity, with the latter seeing a 26 percent price jump since then.
Meanwhile, the value of the Pakistani rupee against the dollar is on a slide, dropping from 275 rupees in early July to above 300 and so on.
The statistics provided by the Government say that food inflation was at more than 38 percent in August and is likely to rise further this month due to the rise in electricity and fuel prices. But the people are worried about these price increases.
Impact Of Price Surge On People
The government has categorically said prices will not be lowered as the effects of tough economic decisions taken since the IMF bailout become devastating for Pakistan’s poor.
Shopping in a market has become a daunting task, after a few days the prices of goods in the market go up. The people are facing difficulty to make ends meet.
View Of Economists
Economist Ammar Habib Khan told the news that the increase in the cost of power was eating away at the disposable income of poor households which have already seen their disposable income drop by more than 40 percent due to price surges.
Economists have said that the government should try to support poor households by reducing taxes in the short term as sales taxes and other government charges make up more than 30 percent of the total electricity tariff.
Why are Prices High?
Price Hike in Pakistan, like in many other countries, can be attributed to a combination of domestic and international factors.
The main causes of inflation and their relative importance can be different over time, but here are some of the key factors that have historically contributed to inflation in Pakistan.
Demand-Pull Inflation
One of the primary drivers of price increases in Pakistan is excessive demand for goods and services but their supply is less than the demand. This can result from factors such as increased government spending, rising consumer demand, or faulty policies that lead to more money in circulation.
Cost-Push Inflation
This type of price hike occurs when the costs of production for businesses increase, and these higher costs are passed on to consumers in the form of higher prices. Factors contributing to cost-push inflation in Pakistan include rising energy prices, higher import costs, wage pressures, and so on.
Exchange Rate Fluctuations
Pakistan often faces fluctuations in its exchange rate due to various economic factors. A depreciation of the Pakistani rupee can make imports more expensive, leading to higher prices for imported goods and services, which can contribute to an increase in prices.
Global Commodity Prices
Pakistan, like many countries, relies on imports for various essential commodities, including oil and food. Changes in global commodity prices, especially increases, can lead to higher prices in Pakistan as the cost of these imports rises.
Monetary Policy
The actions of the State Bank of Pakistan, the country’s central bank, play a crucial role in controlling price hikes. Policies, such as lowering interest rates or increasing the money supply, can stimulate demand but may also contribute to inflationary pressures.
Fiscal Policy
Government spending and taxation policies can impact price hikes. If the government increases spending without a corresponding increase in revenue, it can lead to inflationary pressures as more money enters the economy.
Supply Chain Disruptions
Disruptions in supply chains, whether due to natural disasters, transportation issues, or other factors, can result in shortages of essential goods and services, causing prices to rise.
Structural Issues
Pakistan faces various structural issues that can contribute to cost increases, such as inadequate infrastructure, inefficient agricultural practices, and regulatory barriers. These factors can affect the supply side of the economy and lead to price increases.
Inflation Expectations
If people and businesses expect prices to rise in the future, they may adjust their behavior accordingly, demanding higher wages and raising prices themselves. This can create a self-fulfilling cycle of price increases.
Geopolitical Factors
Political instability, regional conflicts, and security concerns can disrupt economic activity and contribute to inflationary pressures in Pakistan.
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