Inflation news

The latest weekly inflation figures, as measured by the Sensitive Price Index, show that the reduction brought about in the rupee-dollar parity has not yet translated into bringing prices down, and has not yielded the desired result, which is to cause a decline in the overall inflation rate. With a fortnightly fuel price adjustment due, the previous reduction has not yet had the result of reducing inflation. Apart from direct fuel prices, the price of power has not come down, though the government hopes that the bills will come down as consumption decreases in winter as fans, water-coolers and ACs are turned off. Inflation is still dangerously high, at a year-on-year 38.2 percent, which keeps the economy in the danger of falling into runaway hyperinflation. However, there is a hope that it will begin to come down.

That is something the government will look forward to anxiously, for one of the main results of inflation so far has been to drive up the interest rate, and thus the government’s cost of borrowing. That cost has to come out of revenue. Further, that cost affects the parity ultimately, and thus has an inflationary effect. Therefore, the government has a vested interest in keeping inflation, not because of the effect it has on the common man, but because of the effect on government finances. Because of this, domestic debt threatens to become as much of a problem as external debt, with the same disastrously explosive consequences if not handled properly.

While the caretaker government and its backers are concerned about inflation. The main measure taken, to reduce the value of the dollar by what amounts to arm-twisting, will not work forever. AS is shown by the problems of dea;ing with smuggling, individuals in every institution are corruptible, which means that anti-smuggling efforts must have a buy-in from the common man.That is not possible for the caretakers, no matter they have such figures as Dr Shamshad Akhtar and Dr Gohar Ejaz in the caretaker cabinet. The only way is for the government to have credibility, something which can only be conferred if they have a five-year tenure, and smugglers and currency speculators know they aren’t going anywhere soon. Even if they prolong their tenure, as the present caretakers seem to have done, there is no way of predicting how long they intend to remain in office,