Food Inflation Explained!
In Pakistan, food inflation has remained in double digits since August 2019. As of July 2022, it had reached ~25%, which is the highest in the past five years.
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For the outgoing fiscal year (FY 2021-22), the inflation target was set at 8%, but an unusual increase in global commodity prices led to average annual inflation of 12%. Owing to an inflationary regime, the Finance Division made the Competition Commission of Pakistan (CCP) a part of the National Price Monitoring Committee (NPMC) to review the supply and prices of essential commodities and to put in place timely measures to avoid any shortages in the country.
CCP has released its latest draft titled 'Review of Essential Commodities to Identify and Address Market Distortions', which has insights regarding how ten essential commodities in the Sensitive Price Index (including; onion, tomato, potato, edible oil & ghee, rice, wheat, sugar, poultry, milk, and pulses, which contribute 63% in monthly food expenditure) when combined showed a 35% increase in price in July 2022 as compared to July 2021.
According to the data compiled by the CCP, a correlation between the prices of Petroleum Oil Lubricants (POL) and the prices of commodities can be observed with the highest correlation observed with the prices of masoor, edible oil, and milk. Except for milk all of these commodities are highly import oriented and a strong correlation may be attributed to transportation charges. The correlation is stronger in the prices of petrol as compared to diesel.
GRAPHICS OF THE DAY
To compute the correlation, the prices of essential commodities (based on data from the Pakistan Bureau of Statistics - PBS) were taken covering the period of January 2019 to August 2022 by the Competition Commission of Pakistan (CCP)
The price of Pakistani onion in the international market has remained almost stagnant compared to other exporting countries due to meeting low international quality standards. Also, there is a barrier to export in the form of a minimum dollar value (USD 400), smaller growers thus find it difficult to export and incur a financial loss due to not being able to ship the surplus crop
The ending stocks of wheat stood at their high during the period starting from 2017, but they started depleting and reached their lowest in 2019-20 due to massive exports and lower production. Consequently, Pakistan has been importing wheat throughout FY 2020-21
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