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Old Saturday, May 19, 2007
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Pains of rising inflation

GIVEN that the government’s annual forecasts are based more on guesswork than sustained research, it is not surprising that the inflation target for the current year does not reflect the situation on the ground. It is believed that inflation in 2006-07 could be as high as 7.5 per cent, well in excess of the 6.5 per cent target. What is particularly worrying is the massive growth in food inflation. While everyone in the commercial food chain — growers, livestock owners, wholesaler and retailers — can adjust to inflationary pressures by raising prices, no such option or mechanism is available to the poor and those in fixed-income groups. With the benefits of economic growth failing to trickle down to the most needy, the situation is becoming bleaker by the day. In the first ten months of 2006-07, the prices of perishable food items shot up by 17.6 per cent as opposed to 5.1 per cent in the corresponding period the previous year. Non-perishable food items also became nine per cent more costly. On the other hand, non-food inflation in the last ten months was significantly lower than what it was during the same period in 2005-06, falling from 8.8 per cent to 6.2 per cent. This decline is attributed to a tighter monetary policy which has managed to put the brakes on credit growth.

Food production is subject to the vagaries of nature but this unpredictability only reinforces the need for proper planning. Instead of building strategic reserves of items such as rice, wheat and sugar, the current ad-hoc approach is to export at a time of surplus and import during shortages. The lack of proper storage facilities and other logistical problems cannot be an excuse. At the same time, there are few checks on hoarders and cartels that corner markets, create artificial shortages and manipulate prices in the name of free enterprise. The Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 is an anachronism in an unregulated economy and must be brought up to date. A more sophisticated and effective monitoring mechanism is needed to check unfair trade practices, particularly those that hit the poor the hardest.
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