Low inflation rate and stagnant economy
In such an event, economists are of the view that a mild inflation of 1 to 2 per cent may be desirable, as the same would provide an incentive to producers to increase production and keep the economy growing.
However, in an opposite scenario, when an economy is stagnant or moving at a very slow pace, agricultural and industrial production records a sporadic trend (rising in one year and falling the next year), unemployment increases as the economy is unable to create new jobs and people’s real incomes fall, and prices are likely to be depressed and unpredictable.
In such an event, a low inflation rate (as presently in case of Pakistan) is the result of cost-push rather than demand-pull effect. The factors that are presently putting pressure on the cost of production, are higher utility charges, higher transportation cost due to higher petroleum prices, higher taxes, etc. The government is, however, following a tight monetary policy to ensure that the cost-push inflation remains in check.
When an economy is booming and the real income of people growing, people do not mind paying a few pennies more. However, when an economy is plagued by unemployment and poverty, dwindling business prospects, low domestic and foreign investment and lack- lustre demand, even lower inflation rate hurts and hurts badly.
A look at the employment statistics for 1999-02 provided in the Economic Survey, 2001-02 shows that the employed labour force went up from 37.19 million in 1999 to 38.29 million in 02. Nevertheless, unemployed labour force, also, went up from 2.33 million in 1999 to 3.25 million in 02 and unemployment rate increased from 5.89 per cent in 1999 to 7.82 per cent in 02. It means that a staggering 0.92 million people were added to the unemployed work-force during the last three years. As a result, the number of poor in the country also went up since unemployment and poverty are synonymous.
The survey does not provide poverty statistics beyond 1999. However, a recent report of the Social Policy and Development Centre (SPDC), has revealed that the number of poor, had risen from 33 per cent in 1999 to 38 per cent in 01. At the same time, the gap between the rich and the poor had, also, increased. The rich were getting richer and the poor were getting poorer.
At a time, when unemployment and poverty are growing and income inequalities rising, even a mild inflation becomes unbearable for the poorer sections of the society. The government had, no doubt, been able to bring down the rate of inflation but the same is still a source of botheration to people belonging to fixed and lower income categories.
It must be understood that lower rate of inflation does not mean that prices have come down. What it means is that prices are increasing at a lower rate than before. Also, to be borne in mind is that inflation, particularly hurts people belonging to fixed income and lower income groups, because they are unable to increase their income in line with the rising prices. At the same time, such people cannot, cut down their expenses since they are already barely meeting their necessities, and comforts.
According to statistics provided in the survey, prices (as measured by the Consumer Price Index) (CPI) increased by 3.6, 4.4 and 2.8 per cent in 1999-2000, 2000-01 and 2001-02. Cumulatively, prices had increased by 10.8 per cent during the last three years, which means that the purchasing power of people had been reduced by 10.8 per cent during this period.
During the same period, average retail price of wheat flour went up from Rs8.35 per kg in 1998-99 to Rs9.71 in 2001-02 (16 per cent), price of Basmati rice (broken) moved up from Rs14.50 per kg in 1998-99 to Rs16.15 in 2001-02 (11 per cent), price of gram pulse rose from Rs22.8 per kg in 1998-99 to Rs34.97 in 2001- 02 (58 per cent), that of sugar went up from Rs19.09 per kg in 1998-99 to Rs23.10 in 2001-02 (21 per cent) and price of tea (250 gm packet) had increased from Rs51.89 per packet in 1998-99 to Rs57 in 2001-02 (10 per cent), whereas price of vegetable ghee (loose) has declined from Rs54 per kg in 1998-99 to Rs48.91 in 2001-02 (-9 per cent).
It may be pointed out here that people generally purchase above-mentioned items from locality shops and are often quality- conscious. The prices for at least some of these items are, therefore, much higher than the average retail prices (collected from selected markets) as reported by the Federal Bureau of Statistics (FBS).
There is another item that is bothering the fixed and the lower income groups seriously is the frequent increase in the utility charges. The FBS has reported an increase of 12.1 and 9.2 per cent only in fuel and lighting in July-April, 2000-01 and 2001-02 respectively (page 110/ the Economic Survey, 2001-02). which is an under-estimate. The weight of fuel and lighting being 8.01, the above-mentioned changes resulted in an increase of 1 and 0.7 per cent only in the CPI in 2000-01 and 2001-02 respectively. As a matter of fact, fuel and lighting bills received by the consumers have, at least, increased by about 40 per cent during the last two years. If price increase was calculated on this basis, increase in the CPI would be much more than what had been reported by the FBS.
It appears that the government is not fully realising how the hike in utility bills has affected family budgets of common men. Apart from the increases in the utilities prices, sales tax and withholding taxes have resulted in a disproportionate increase in utility bills. Utility consumers, belonging to fixed and lower income groups have been driven to a position where they have to sacrifice their bare necessities, in order to retain gas, electricity and telephone connections. That the government is unaware of the situation adds to the injury.
What can the government do to provide relief to the poor and protect them against the ballooning utility bills? In the first instance, the government should study how utility bills have shot up during the last three years and it should take action to end distortions and anomalies. Secondly, if inflationary spiral cannot be stopped, incomes of fixed/lower groups need to be increased proportionately to enable them to survive. Of course, the credit goes to the government for bringing down the rate of inflation to a lower level. But, even this lower inflation rate is becoming the last straw on the camel’s back. Therefore, something needs to be done and done urgently to help the poor stay afloat. No doubt, the macro-economic stability is important, but are the people of this country not equally important?