Residents of the major cities say they are already feeling the pinch, and fear the worst for the future. Small groups have even taken to the streets in protest, holding placards reading “inflation has killed us.”
“This must stop somewhere. It must be controlled, but there is no control anywhere,” said Mohammad Mumtaz, a retired school teacher, as he was shopping for vegetables in Lahore. “We cannot even purchase bread with whatever we have. God alone knows what will become of the poor man.”
Wrestling with a ballooning current account deficit as it seeks a 13th bailout package from the International Monetary Fund, Prime Minister Imran Khan’s government has a hard choice – impose pain now or face a balance of payments crisis that could crash the economy. Foreign reserves of $8.5 billion are better than the start of the year, but barely cover two months’ worth of imports.
Inflation was over 9.4 percent in March, its highest since November 2013, with strong increases in food and energy, the two most sensitive items for most consumers. The central bank forecasts growth at 3.5-4 percent in the 12 months to end June, well off a government target of 6.2 percent.
With the rupee losing over a quarter of its value in the past year, the squeeze is acute in the creaking power sector where the government is under pressure to cut subsidies cushioning consumers against sharp price hikes.
Authorities on Monday (April 1) hiked petrol prices by 6 rupees to 98.88 rupees ($0.70) a litre, bringing pain to skilled workers who earn 1,000-1,300 rupees ($7.08-9.20) a day and labourers who make up to 600-800 rupees.
“The inflation trajectory from now on will depend on to what extent the government is going to adjust these energy prices,” said Saad Hashemy, chief economist at Topline Securities told Reuters, pointing out that Pakistan will have to address its energy deficit at some point and bring earnings in line with the cost of production.
Hashemy expects the government to keep to a gradual increase in utility tariffs, but even so predicts overall rising prices to quicken to “double digit inflation in the near term.”
While economists believe Pakistan has no choice but to cut spending and raise prices, consumers’ patience is wearing thin.
Thirty-year-old Islamabad taxi driver Yasir Sultan’s earnings have tumbled by more than half with surging petrol prices.
“Imran Khan was saying big things about providing employment and getting rid of poverty, but he isn’t erasing poverty, he is erasing the poor,” he said.
(Production: Waseem Sattar, Naeem Abbas, Salahuddin, Sheree Sardar, Travis Teo, Natasha Howitt)