IF there were a central bankers’ roll of honour, it would prominently feature Paul Volcker’s name, perhaps even at the very top. Volcker, who died in 2019 at the age of 92, single-handedly tamed inflation in the US, which had touched 15 per cent in 1980, by rising above political affiliations to do the right thing.
Resisting tremendous political pressure, Volcker raised interest rates, taking them as high as 21.5pc in 1981, killing inflation, but also bringing about the electoral defeat of his benefactor, president Jimmy Carter.
Despite Volcker’s epic battle against inflation, his legacy remains somewhat mixed, mainly because of the steep economic costs attached to the ‘Volcker shock’ that came in the shape of the 1981-82 recession, unsustainable fiscal deficits and rampant unemployment above 10pc.
Over the last two years, just like the US in 1980, Pakistan, too, has suffered from skyrocketing inflation, though of even larger magnitude. It started with the Russia-Ukraine conflict that raised international oil prices, taking inflation to 38pc in May 2023 before coming down to 17.3pc in April.
Pakistan’s central bank had good reason to keep interest rates unchanged.
Where inflation created challenges for everyone, it impacted the most vulnerable or poor segments of society the most, given they spend a disproportionately large fraction of their incomes on food — last year, food inflation had reached an unbelievable 48pc.
No one has specifically connected the present political instability with this inflation, as the recent political upheaval is seemingly driven by structural factors of the........