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‘The worst is yet to come’: the curse of high inflation

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Globally, people are experiencing inflation at levels not seen for decades as prices surge for essentials like food, heating, transport and accommodation. And though a peak could be in sight, the effects may yet get worse.

How did we get here? In two words: pandemic and war.

A long and comfortable period of scant inflation and low-interest rates ended abruptly after COVID-19 struck, as governments and central banks kept locked-down businesses and households afloat with trillions of dollars of support.

That lifeline kept workers from joining dole queues, businesses from going broke and house prices from crashing. But it also knocked supply and demand out of kilter as never before.

By 2021, as lockdowns ended and the global economy grew at its fastest post-recession pace in 80 years, all that stimulus money overwhelmed the world’s trading system.

Factories that had been idled could not ratchet up fast enough to meet demand, COVID-safe rules caused labour shortages in retail, transport and healthcare, and the recovery boom caused a spike in energy prices.

If that wasn’t enough, Russia invaded Ukraine in February and Western sanctions on the major oil and gas exporter sent fuel prices yet higher.

Why it matters

Known as a “tax on the poor” because it hits those on low incomes the hardest, double-digit inflation has exacerbated inequalities worldwide. While wealthier consumers can rely on savings built up during pandemic lockdowns, others struggle to make ends meet and a growing number rely on food banks.

With winter setting in across the northern hemisphere, that squeeze on living costs will tighten as fuel bills soar. Workers have taken strike action in sectors from healthcare to aviation to demand that wages keep pace with inflation. In most cases, they are having to settle for less.

Cost of living concerns dominate the politics of rich nations – in some cases relegating other priorities, such as climate change action.

While recent falls in gasoline prices have eased some of the pressure, inflation remains a top focus for US President Joe Biden’s administration. France’s Emmanuel Macron and Germany’s Olaf Scholz are stretching their budgets to channel billions of euros into support programmes.

But if things are tough in industrialised economies, rocketing food prices are worsening poverty and suffering in poorer countries, from Haiti to Sudan and Lebanon to Sri Lanka.

The World Food Programme estimates an extra 70 million people worldwide have been driven closer to starvation since the start of the Ukraine war in what it calls a “tsunami of hunger”.

What does it mean for 2023?

The world’s central banks have embarked on steep interest rate hikes to cool demand and tame inflation. By the end of 2023, the International Monetary Fund expects global inflation to have fallen to 4.7% – just less than half its current level.

The aim is for a “soft landing” in which the cooling-off happens without housing market crashes, business bankruptcies or surging joblessness. But such a best-case scenario has proven elusive in past encounters with high inflation.

From US Federal Reserve chief Jerome Powell to the European Central Bank’s Christine Lagarde, there is growing talk that rate-hike medicine may taste bitter. On top of that, risks surrounding the big uncertainties – the Ukraine war, tensions between China and the West – are skewed to the downside.

The IMF’s regular October outlook was one of the bleakest for years, stating: “In short, the worst is yet to come and for many people, 2023 will feel like a recession.”

Business

Tourism boom: During Eidul Azha, more than 400,000 people travel to KP

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Over 400,000 people travelled to several beautiful locations in Khyber Pakhtunkhwa between June 17 and June 19, celebrating the recently ended Eidul Azha festivities.

With over 174,000 visitors in one day, Naran Kaghan emerged as the most popular location. Visitors looking for a getaway from the city are still drawn to Naran Kaghan’s calm scenery and charming valleys.

A total of 162,000 visitors to Galiyat took in the city’s rich history at its cultural institutions and historical landmarks. In addition, more than 46,000 people visited Malam Jabba in Swat, and 23,000 people visited Upper Dir to take in its stunning surroundings.

Khyber Pakhtunkhwa is becoming a popular domestic vacation destination due to its unique combination of natural beauty, cultural legacy, and adventure options, as seen by the rise in visitor numbers.

Businesses and local government agencies have been collaborating to make sure tourists have an unforgettable time while appropriately handling the inflow.

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Pakistan currently has $14.41 billion in foreign exchange reserves.

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In a statement, the central bank stated that as of June 14, 2024, Pakistan’s foreign exchange reserves held by the State Bank of Pakistan (SBP) stood at $9.135 billion, following the increase.

The announcement also stated, “SBP reserves increased by US$ 31 million to US$ 9,134.7 million during the week ended on June 14, 2024.”

The State Bank of Pakistan (SBP) stated that the nation had $14.415 billion in total liquid foreign reserves. Commercial banks own $5.28 billion of the total in net foreign reserves.

It was announced earlier on June 13 that Pakistan’s foreign exchange reserves reached US$14.38 billion, up US$168 million in the first week of June.

Pakistan’s reserves held by commercial banks rose by US$174 million to $5.28 billion for the week that ended on June 7, according to a statement released by the central bank.

The SBP now has US$9.10 billion in reserves, down US$6.2 million from before. The central bank did not provide an explanation for why its reserves fell.

“SBP reserves decreased by US$ 6 million to US$ 9,103.3 million during the week ended on July 7, 2024,” the SBP said in a statement.

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In a first for history, PSX crosses the 77,000 milestone.

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At 77,213.31, the benchmark KSE-100 hit an all-time high, up 1,005.15, or 1.32%, from the previous close of 76,208.16.

The government’s readiness to seal an agreement with the International Monetary Fund (IMF) following the budget was cited by analysts as the reason for the upward trend.

Experts anticipate that in an attempt to bolster its position for a fresh bailout agreement with the International Monetary Fund (IMF), the budget for the fiscal year ending in June 2025 would set aggressive fiscal goals.

Budget for Pakistan, 2024–2025
Pakistan’s budget for the fiscal year 2024–25, with a total expenditure of Rs18.877 trillion, was presented on Wednesday by Minister of Finance and Revenue Muhammad Aurangzeb.

The Finance Minister, Muhammad Aurangzeb, outlined the budget highlights. He stated that the GDP growth target for the fiscal year 2024–25 is set at 3.6 percent, while the inflation rate is anticipated to stay at 12 percent.

He stated that while the primary surplus is anticipated to be 1.0 percent of GDP during the review period, the budget deficit to GDP is forecast to be 6.9 percent over the period under review.

According to the minister, tax income collection increased by 38% in the current fiscal year, and the province will receive Rs7,438 billion. The Federal Board of income expects to earn Rs12,970 billion in revenue for the upcoming fiscal year.

In contrast to the federal government’s projected net income of Rs9,119 billion, he stated that the federation’s non-tax revenue projections are set at Rs3,587 billion.

The federal government’s total outlays are projected to be Rs18,877 billion, with interest payments accounting for the remaining Rs9,775 billion.

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