Islamabad: Pakistan’s consumer price index (CPI) increased by 31.5 per cent in February year-on-year, according to the Pakistan Bureau of Statistics. This is the highest annual inflation rate in nearly 50 years, as food and transportation prices surged more than 45 per cent.

CPI, which measures the percentage change in the prices of goods and services, is widely considered an indicator of inflation. February’s CPI rate of 31.5 per cent is the highest since 1974 when the average inflation rate was recorded 32.8 per cent. Those who previously struggled are now making even greater sacrifices to put food on the table and provide for their families. Even those who have never sought food assistance are compelled to do so for the first time, according to local media reports.

Increase in prices

In February, the prices of several food items saw a significant surge compared to a year ago in urban Pakistan. Onions had the highest increase at 416 per cent, followed by chicken at 97 per cent, eggs at 79 per cent, rice at 78 per cent, pulse moong at 56 per cent, wheat flour at 56 per cent, cooking oil at 50 per cent, and fresh fruits at 45.17 per cent.

The prices of several non-food items have seen a dramatic rise from the same month last year, according to official data. Textbooks saw the biggest increase at 74 per cent, followed by motor fuel at 63 per cent, gas charges at 63 per cent, stationery items at 61 per cent, washing soap/detergents at 51per cent and motor vehicles at 39per cent. Other items with notable increases of 17per cent to 37per cent include motor vehicle acces-sories, transport services, marriage hall charges, major tools and equipment, tailoring, mechanical services, clothing, and medical tests.

The inflation in prices of everyday goods and services like food, gas, rent, and utilities is being felt by almost everyone. Food prices are expected to go even higher in March as Ramadan approaches. Experts have warned that the months ahead are likely to see a continuation of rising inflation due to structural adjustments mandated by the IMF and currency devaluation.

Taxes and IMF loan

Pakistan’s government spiked fuel prices, increased energy tariffs, and announced new taxes worth $170 as part of efforts to boost revenue for bailout funds and to avoid default. Pakistan held 10 days of intensive talks with an IMF delegation in Islamabad from January 31 to February 9 but could not reach a deal. Both sides, however, are continuing virtual discussions to finalize the implementation of the agreement and secure a $1.1 billion tranche from the $7 billion IMF bailout program. Pakistan desperately needs external financing to keep the economy afloat.

Moody’s slashes Pakistan’s credit rating

This week, global rating agency Moody’s downgraded Pakistan’s credit rating to Caa3 from Caa1 due to “Pakistan’s increasingly fragile liquidity and external position significantly raise default risks.” The Caa3 rating is considered to be of poor standing and subject to very high credit risk. The downgrade will make it harder for Pakistan to access international capital markets.

Pakistan’s foreign exchange reserves have fallen to extremely low levels, far lower than necessary to cover its import needs and external debt obligations over the immediate and medium term.

“Although the government is implementing some tax measures to meet the conditions of the IMF programme and a disbursement by the IMF may help to cover the country’s immediate needs, weak governance and heightened social risks impede Pakistan’s ability to continually implement the range of policies that would secure large amounts of financing and decisively mitigate risks to the balance of payments” according to Moody’s.

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