Despite several unexpected external threats, the government beat its inflation target of 7.5% for the past fiscal year, recording 7.1% instead. Policymakers will undoubtedly be patting themselves on the back for bringing rampant inflation under control, and even managing the inflationary shock caused by the Iran War.
Understanding the Inflation Drop
But a fall in the rate of inflation actually means that the pace of price increase has slowed down, and not that the prices have come down. No wonder the masses are still feeling the pinch because a lower inflation rate only freezes the damage rather than reversing it. The fiscal stabilisation policies pursued under the IMF programme have already caused a lot of harm to the public purse.
Impact on Consumers
While food prices were mostly steady all year, petrol prices shot up by 32% for the year and electricity tariffs by about 24% nationwide. The spikes in fuel and energy prices have hit middle income consumers the hardest. Indeed, headline inflation only came down when oil prices started to return to normal.
Banking and Investment
Some experts have also pointed to changes in banking regulations that have allowed banks to reduce the volume and value of loans they approve, thereby reducing the potential for private investment. Meanwhile, the inflation controls have taken their toll on economic growth and development spending, as the government has chosen - under IMF pressure - to balance the budget by curtailing spending, which also has anti-inflationary effects.
Future Outlook
With inflation now certifiably in check, the government needs to start doing more to stimulate economic growth while also investing in infrastructure and social services. A good starting point would be to encourage banks to lend more, because the best way to grow the economy and put more money in people's pockets is to support local businesses. Next year's slightly higher target of 8.2% reflects this, as growth invariably causes inflation. However, the looming threat of international upheaval from the USA's erratic interactions with the rest of the world means that, even with increased investment and strong policies, we could still be in for a wild ride.
