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Making sense of inflation

Some important lessons in inflation, as taught by the street vendor and our milkman

Making sense of inflation

“The milkman says he’ll charge Rs 110 per litre from next week,” my wife grumbled as she prepared our breakfast. “He is right; water is becoming scarce!” The sarcasm in her words was unmistakable.

I tried to pacify her so that we wouldn’t get a breakfast that was as bitter as the dawning realities.

Frying eggs, my wife was lost in planning the household expenses. Of course, it was going to be a deficit budget. “The milkman says everything is getting costlier with the rising inflation, and milk is no exception,” she informed me.

I was taught my next lesson in inflation by a roadside fruit vendor. “How much for a kilo,” I asked him, about mangoes. “[Rs] 150,” he replied, rather curtly.

“Why so costly this year,” I enquired.

“Bao jee, dollar is flying high against the rupee,” he tried to educate me, as he unloaded crates of mangoes from a donkey cart.

“What has dollar got to do with the mangoes?”

“Bao jee, when dollar goes up, the prices of everything go up. Petrol costs more, transport costs more, farm inputs cost more, and services cost more.”

Whatever he told me made sense. I have listened to economists unravelling the mysteries of economy and inflation, but they made little sense to me as I am not comfortable with maths and figures. But the milkman and the fruit vendor taught me some practical lessons in the simplest possible way, though I will have to pay for them — in the form of more money for milk, fruits and vegetables.

According to the Pakistan Inflation Rate (PIR), last updated on July this year, our most important categories in the consumer price index are food and non-alcoholic beverages (35 percent of total weight); housing, water, electricity, gas, and fuel (29 percent); clothing and footwear (8 percent), and transport (7 percent). The index also includes furnishings and household equipment (4 percent), education (4 percent), communication (3 percent) and health (2 percent). The remaining 8 percent goes into recreation and culture, restaurants and hotels, alcoholic beverages, tobacco and other goods and services.

A 2014 report by the US Department of Agriculture’s Economic Research Service, in which 84 countries were surveyed, said that Pakistanis spend more of their income on food than people in any other part of the world do. An average Pakistani spends 47.7 percent of his household budget on food consumed at home. People in the United States spend the least on food (by percentage), even less than Europeans and Canadians — an average American citizen spends only 6.6 percent of his household budget on food.

In the Economic Survey 2018-19, the government blamed a weak agriculture sector, power slippages, global commodity price shocks, and a contraction in the demand for domestic consumer goods, on the dismal economic performance that results in inflation. The government claims it has inherited a weak economy — the fiscal deficit was high; the current account deficit is also at the highest level in the country’s economic history; debt liabilities had risen to a level where servicing of the debt took a sizeable portion of the federal government’s budget; and foreign exchange reserves had depleted to a level that was insufficient to finance even two months of imports. This instability was a result of structural weaknesses in the country’s economy which had remained unaddressed for decades. Insufficient policy action over the last two years, it says, aggravated the macroeconomic imbalances.

Reasons offered by the government’s economic managers aside, the rising number of traders taking to the streets, shutting down their businesses across the country, striking industrial units in Faisalabad, and disgruntled real estate agents decrying the unbearable taxes show something is terribly wrong with the system.

Price hike and rising taxes are not a new phenomenon; every generation finds its ways to counter these and live on. The immediate response to rising inflation by me and my wife is to cut down on milk — from three litres to two litres a day — and mango parties only at the weekends. Instead of using a car to commute to office, Qingchi (motorcycle rickshaw) turns out to be a more viable solution. Happy living!

Mazhar Khan Jadoon

The author is a staff member.

2 comments

  • R S Chakravarti

    Some decades ago one could have used a bicycle but now there is far more traffic and air pollution.

  • Unless Pakistanis understand the real reason for the crisis nothing is going to change. In fact there may be millions trying to flee.
    Defence budget is $11b. Population is growing by 4m. How many houses do these people need ? One million and how much does it cost to buy land and build one house $30,000 at least ? So you need to spend $30b a year or more than Pakistan’s total budget on new homes!
    Never mind schools , oil imports etc. So unless a one child policy is brought in for three generations populations will still double and both India which is adding 16m a year and Pakistan are doomed. Imagine if four million Afghans were coming to Pakistan each year !

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