Painful food inflation

The author writes, "edible items that cost Rs5,300 in February 2022 in urban areas now cost roughly Rs10,000."


March 27, 2023

ISLAMABADIn February this year, annualised food inflation shot up to 41.9 per cent in urban areas and 47pc in rural areas of Pakistan. In February last year, these readings stood at 14.3pc and 14.6pc, respectively.

This means that food inflation — or the pace of increase in the prices of food items — has more than tripled in just one year.

But what does it mean for households? It means that a rural family needed Rs14,700 in February 2023 to buy the same amount of food that they had bought for Rs10,000 in February 2022. For an urban household, the requirement was a little less — Rs14190.

So, what if rural and urban households didn’t have more than Rs10,000 to spend on food? Well, in that case, in Feb 2023, a rural and an urban household ended up buying with their Rs10,000 only as much food as was worth Rs5,300 and Rs5,810, respectively, in Feb 2022.

This painful food inflation has hit Pakistanis amidst a sharp economic slowdown (likely GDP growth of 1.3pc in FY23 versus 6pc in FY22), rendering about two million people jobless. It is not difficult to imagine the disastrous impact of such high food inflation rates on the lives of jobless people and those whose incomes have fallen due to the economic crisis.

No wonder people are losing lives in stampedes occurring at the distribution of free wheat flour and some are committing suicide. However, the vast majority of financially constrained people are living on meagre incomes by working in the shadow economy, supplemented by debts, charity and the government’s cash handouts and subsidies.

The edible items that cost Rs5,300 in February 2022 in urban areas now cost roughly Rs10,000

The sad news is food inflation is here to stay. Supply shocks caused by the last year’s floods, higher international commodity prices, the rupee’s depreciation, lack of administrative checks on retail prices amidst worsening political crisis, hoarding of food commodities and the unabetted smuggling of food items to neighbouring Afghanistan may keep food inflation high in near future.

Stories of the smuggling of wheat, wheat flour and cooking oil to Afghanistan make headlines regularly in newspapers. But who cares to stop it amidst the ongoing political and constitutional crisis? Admittedly smuggling and hoarding of food items alone are not fueling food inflation — and there are solid economic reasons for it like an increase in support prices, the rupee’s depreciation, higher international prices etc.

But if a country is unable to overcome these and other “economic reasons”, should it allow hoarding and smuggling to go on? The answer is obvious.

In eight months of this fiscal year (between July 2022 and Feb 2023), forex-starved Pakistan had to spend $6.687 billion on food imports, according to the Pakistan Bureau of Statistics. Chances are that the full fiscal year food import bill will exceed $10bn.

At a time when the country is running dry of foreign exchange, no one can deny the need for putting more effective checks on the smuggling of food items out of the country. Similarly, it is essential to ensure that food commodities are not hoarded and retailers don’t overcharge customers or short-sell to them.

But such things can be done only in an environment of at least some political stability. That, sadly, remains absent. So, food inflation may continue to remain high in the coming months as well. Possible further interest rate tightening by the State Bank of Pakistan in April, at the urging of the International Monetary Fund, may not ease food inflation.

Stubbornly high food prices will start easing only when our agricultural output increases and energy prices become stable. Reducing consumer inflation makes agricultural inputs cheaper, and more importantly, political stability returns to the country while the hoarding and smuggling of food items fall significantly.

In addressing food inflation — as in all other matters — sincerity of intent counts more than anything else. For decades, our rulers have made it a habit to talk more and do less. That has resulted in weak or no accountability of the government departments and agencies entrusted with certain responsibilities.

Do our federal or provincial food ministers keep a check on whether officials responsible for gathering food prices do their jobs honestly? If you visit the Pakistan Bureau of Statistics (PBS) website and download weekly prices of essential items, you will be amazed to see wheat flour, milk, and curd are still selling at really cheap rates.

The PBS price sheet of March 16, 2023, shows average prices of milk and curd at Rs160 per litre and Rs185 per kg, respectively! One wonders whether they have considered Karachi’s milk and curd prices (Rs210 and Rs300, respectively) before working out the national average prices of these two items. And if yes, then somewhere in Pakistan, milk and curd must have been selling at surprisingly low prices that the media did not report.

This is just an example of inefficient monitoring. But examples of more serious problems, including corruption, also abound — if not in PBS — then in provincial food departments across Pakistan.

For example, recently, wheat flour millers in Punjab and Sindh stopped milling when asked to sell flour bags at certain rates because of corruption-induced misallocation of wheat quotas. It’s a separate story, though, that flour millers were as much to blame for it as “unscrupulous” food department officials.

Little wonder then, most Karachiites buy fine wheat flour from Chakki-owners (small, often unlicensed wheat-flour millers) for Rs160 per kg. The government, by the way, claims that wheat flour (of “standard” quality) is available at Rs90 per kg. Ramazan Mubarak!

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