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Inflation: who is responsible?

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Advisor to the Prime Minister on Finance Dr Hafeez Sheikh expressed concern at the rate of inflation, and the credibility of Pakistan Bureau of Statistics (PBS) data while chairing a Monetary and Fiscal Policies Coordination Board (MFPCB) meeting held this Thursday past. Governor, State Bank of Pakistan (SBP), Dr Reza Baqir, an MFBCB member, responded that there was no pressure from the demand side, his area of responsibility, and recommended disaggregating inflation components to determine the exact contribution of each item to inflation.

Dr Baqir’s recommendation to disaggregate inflation is inexplicable as the PBS gives the weightage of each item in its calculation of the consumer price index (comprising of monthly price changes of 356 items in urban and rural areas), the sensitive price index (includes weekly price changes of 51 essential items) and core inflation (energy and food prices not included as the former is responsive to external market conditions including the rupee dollar parity which is within the SBP domain while food inflation is generally a seasonal supply side issue).

Inflation however is not only demand-pull but cost-push (utility/input costs rise as well as higher taxes impact on prices) and built-in indicating demand for higher wages as prices rise – all elements that were negotiated and agreed with the International Monetary Fund (IMF) by Dr Baqir and Dr Sheikh who have been formulating and implementing fiscal and monetary policies of this country for the past fifteen months; and sadly, like their predecessors, they are at pains to pass on the buck to a third party notably cartels which operate in even those sectors like sugar and cement whose prices the world over are set by market conditions (supply and demand). This evaluation has nicely fed into Prime Minister Imran Khan’s oft repeated mantra of........

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