SUMMARY of the Article “High Cost of Living,” by Editorial, Dawn, October 4th, 2024

The article discusses the recent slowdown in the rising cost of goods and services in Pakistan, marking a significant reduction in inflation rates. Headline inflation, which fell to a 44-month low of 6.9% in the previous month, is the result of multiple factors including last year’s high base of 31.4%, falling global oil and commodity prices, stabilization of the exchange rate, reduced demand due to decreasing real wages, and strict monetary tightening. Pakistan’s inflation outlook is looking better, with both core inflation and the three-month average inflation rates dipping into single digits, suggesting a slowdown in imported inflation, especially for items such as energy and food. The State Bank of Pakistan (SBP) has responded to these developments by cutting borrowing costs to 17.5% since June, and private businesses are now advocating for an even more aggressive reduction in interest rates in upcoming months. The editorial also mentions the government’s recent initiative to repurchase costly debt maturing in December at a lower interest rate, reflecting expectations of monetary easing. However, the article notes that the overall cost of living continues to rise despite a lower inflation rate, as consumer expenses for goods and services remain high. This is particularly painful for the middle class, who are still struggling with rising grocery prices, school fees, and medical costs. The editorial cautions against the government’s potential temptation to introduce inflationary measures to stimulate growth in an effort to appease the electorate before upcoming elections, though such a possibility remains low due to the International Monetary Fund (IMF) monitoring Pakistan’s fiscal policies.

Easy/Short SUMMARY:

The article talks about the slowdown in rising prices in Pakistan, where inflation dropped to 6.9% due to various factors like lower oil prices and strict monetary policies. However, even though inflation is going down, the cost of living remains high, especially for middle-class families who still face rising expenses for groceries, school fees, and healthcare. The article also warns that while there is hope for more cuts in interest rates, the government might try to use risky inflationary measures to gain public approval before elections, though the IMF is keeping an eye on things to prevent that.

SOLUTIONS of The Problem:

1. Increasing Real Wages

The government should focus on policies that boost real wages to help citizens cope with the rising cost of living. Programs that increase the minimum wage and promote job creation in sectors with better pay can reduce the gap between earnings and inflation.

2. Subsidizing Essential Goods

To directly alleviate the burden of high prices, the government can introduce subsidies for essential goods such as food staples, healthcare, and education. This will allow citizens to afford basic necessities while the economy stabilizes.

3. Expanding Social Safety Nets

Expand social welfare programs like the Benazir Income Support Program (BISP) to support lower-income households who are disproportionately affected by inflation. Targeted cash transfers can provide immediate relief to those struggling to meet basic expenses.

4. Sustainable Economic Growth Strategies

Develop long-term growth strategies that stimulate the economy without causing inflation. Investments in infrastructure, education, and health can boost productivity and generate jobs, leading to higher incomes that keep pace with inflation.

5. Monetary Policy Adjustments

The State Bank of Pakistan (SBP) should continue to monitor inflation trends closely and adjust interest rates accordingly to avoid overheating the economy. A cautious approach to cutting rates can help control inflation without causing a spike in prices.

6. Tax Reforms

Introduce tax reforms that reduce the burden on lower-income households and small businesses while ensuring that wealthier citizens contribute more. This can help redistribute income and ease the financial pressure on the middle class.

7. Enhancing Agricultural Productivity

Improving agricultural productivity can help lower food prices, a major component of inflation in Pakistan. Investment in modern farming techniques, irrigation systems, and storage facilities can reduce supply chain disruptions and stabilize food prices.

8. Encourage Savings and Investments

The government should promote savings and investment schemes with attractive returns to encourage citizens to build wealth over time. Providing financial literacy programs can also help people manage their expenses more effectively.

9. Reduce Energy Costs

The government can work to lower energy costs by investing in renewable energy sources like solar and wind power. Reducing the country’s reliance on imported fuel can stabilize prices and lower electricity and transportation costs.

10. Debt Restructuring

By restructuring government debt and negotiating better repayment terms, the country can reduce its fiscal burden and free up resources for social welfare programs and development projects, which can help offset the rising cost of living.

IMPORTANT Facts and Figures Given in the Article:

Inflation dropped to 6.9% last month, the lowest in 44 months.
The decline in inflation is due to several factors: a high base effect from last year’s inflation (31.4%), falling global oil prices, stable exchange rates, reduced demand, and aggressive monetary tightening.
The State Bank of Pakistan has slashed interest rates by 450 basis points to 17.5% since June.
The government repurchased debt worth Rs351 billion, which was originally sold at 20%-21%, at a lower rate of 16%.
There are calls from businesses for an aggressive rate cut in November and December.

IMPORTANT Facts and Figures out of the Article:

Middle-class families are still struggling with the high cost of living, including rising grocery prices, school fees, and hospital bills.
Despite the falling inflation rate, the prices of essential goods and services continue to increase.

MCQs from the Article:

1. What was the inflation rate last month, according to the article?

A. 31.4%
B. 7.5%
C. 6.9%
D. 12%

2. Which factor contributed to the decline in inflation?

A. Decrease in wages
B. Plunging global oil and commodity prices
C. Increase in real wages
D. Decrease in interest rates

3. How much has the State Bank of Pakistan cut borrowing costs since June?

A. 300 basis points
B. 500 basis points
C. 450 basis points
D. 600 basis points

4. What is the interest rate currently set at by the State Bank of Pakistan?

A. 20%
B. 17.5%
C. 19%
D. 18%

5. What amount of debt has the government repurchased, as mentioned in the article?

A. Rs500 billion
B. Rs300 billion
C. Rs351 billion
D. Rs400 billion

6. What remains a concern for middle-class families despite a decrease in inflation?

A. Falling oil prices
B. Rising costs of goods and services
C. Reduction in taxes
D. Increasing real wages

7. What is one of the causes of the recent inflation decrease?

A. Increased demand for consumer goods
B. Erosion of real wages
C. Rising energy prices
D. Improved agricultural production

VOCABULARY:

Monetary Tightening (مالی سختی): Policies that reduce the amount of money circulating in an economy to curb inflation.
Headline Inflation (سرخی افراط زر): The total inflation rate that includes food and energy prices.
Core Inflation (بنیادی افراط زر): Inflation rate excluding food and energy prices.
Eroding (خراب ہونا): Gradually weakening or reducing something.
Stabilization (استحکام): The process of making something steady or less likely to change.
Repurchase (دوبارہ خریدنا): The act of buying something back, especially debt securities.
Aggressive (جارحانہ): Using strong and forceful measures.
Commodity (اجناس): Basic goods used in commerce that are interchangeable with other goods of the same type.
Projections (تخمینے): Estimates or forecasts of future situations.
Discontent (بے اطمینانی): Dissatisfaction with the current state of affairs.

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dawn.com
High cost of living
Editorial

OVER the past few months, the rate at which the prices of goods and services in the country have risen has slowed significantly. Headline fell to a 44-month low of 6.9pc last month. This decline, driven by a high-base effect from last year when annual inflation stood at 31.4pc, along with plunging global oil and commodity prices, a stable exchange rate, falling demand due to eroding real wages, and, last but not least, aggressive monetary tightening, exceeds the projections of the government and the market. Latest figures from the Pakistan Bureau of Statistics show that both sticky core inflation and the three-month average inflation rates, although higher than CPI inflation, have also fallen to single digits, signalling a substantial easing of inflationary pressures. The narrowing gap between the CPI and core inflation — which excludes energy and food prices —suggests a slowdown in imported inflation.

The improvement in the inflation outlook has already seen the State Bank slash borrowing costs by 450bps to 17.5pc since June. The latest CPI reading has created further room for a cut in interest rates in November and December. The government’s recent move to buy back its costly debt of Rs351bn maturing in December from the commercial banks at the much lower rate of 16pc compared to the 20pc-21pc at which it was originally sold, has deepened expectations of monetary easing earlier than anticipated. In fact, private businesses are already calling for an aggressive rate cut next month. With inflation plunging below the target of 12pc for FY25, the next monetary policy session will test the State Bank’s resolve of treading cautiously since risks remain elevated because of tensions in the Middle East and the fragile economic recovery at home.

No doubt, the recent decline in global energy and commodity prices has helped the government reduce domestic oil, transport and wheat rates. However, prices of goods and services consumed by the people continue to rise even as the inflation rate falls below 7pc. In other words, the cost of living is increasing, though perhaps not as rapidly as earlier, showing that even when the inflation rate decreases, the prices do not. This means there will be no let-up in the pain of middle-class people when it comes to grocery expenses, school fees, and hospital bills. This will persist unless there is a sustainable economic turnaround and a much faster increase in real incomes that outpaces inflation. With the government facing rising public discontent because of poor economic conditions, the big worry is that it might be tempted to go overboard to appease the voters and try to stimulate faster growth through inflationary measures. Although chances of such an eventuality are low with the IMF breathing down its neck, it cannot be ruled out.

Published in Dawn, October 4th, 2024

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