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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.”

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Moody’s says the IMF programme will increase Pakistan’s foreign financing.

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Moody’s, a reputable international rating agency, has stated that Pakistan’s chances of acquiring funding will increase as a result of the recent agreement with the International Monetary Fund (IMF), which offers dependable sources for that purpose from both friendly countries and international financial institutions.

According to a recent Moody’s analysis on Pakistan’s economy, social unrest and tensions could result from Pakistan’s ongoing inflation. The country’s economic reforms may be hampered by increased taxes and potential changes to the energy tariff, it continued.

Moody’s, on the other hand, agrees that the coalition government headed by Shehbaz Sharif of the PML-N is in danger of failing to secure an election mandate, which may potentially undermine the successful and long-lasting execution of economic reforms.

The government’s capacity to proceed with economic changes may be hampered by societal unrest and poor governance, according to Moody’s.

In order to appease the IMF by fulfilling a prerequisite for authorising a rescue package, the government raised the basic tariff on electricity, which coincided with the most recent increase in fuel prices announced on Monday. This report was released by Moody’s.

Food costs have increased in the nation, where the vast majority is experiencing an unprecedented crisis due to the high cost of living, following the government’s earlier presentation of a budget that included a large increase in income tax for the salaried classes and the implementation of GST on commodities like milk.

The most recent comments were made following Islamabad’s achievement of a staff-level agreement for a $7 billion contract that spans 37 months and is contingent upon final approval by the IMF Executive Board.

It states that Pakistan will need foreign financing totaling about $21 billion in 2024–2025 and $23 billion in 2025–2026, meaning that the country’s present $9.4 billion in reserves won’t be sufficient to cover its needs.

Therefore, according to Moody’s, Pakistan is in an alarming position with regard to its external debt, and the next three to five years will be extremely difficult for the formulation and implementation of policies.

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Base Of bilateral relations: China And Pakistan Reiterate Their Support For CPEC

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China-Pakistan economic corridor is a major project of the Belt and Road Initiative, and both countries have reiterated their commitment to it. It remains a fundamental aspect of their bilateral relations.

Vice Chairman Zhao Chenxin of the National Development and Reform Commission of China and Minister Ahsan Iqbal of Planning and Development met in Beijing, where Ahsan Iqbal made this assurance.

The summit made clear how committed China and Pakistan are to advancing their strategic cooperative partnership in all weather conditions.

The focus of the discussion was on how the CPEC was going, with both parties reviewing project development and discussing how the agreement made at the leadership level will lead to the launch of an enhanced version of the CPEC.

In order to improve trade, connectivity, and socioeconomic growth in the area, they emphasised the need of CPEC projects.

The Ml-I Project, the KKH realignment, and the Sukkur-Hyderabad motorway—the last remaining segment of the Karachi-Peshawar motorway network—were all to be expedited.

Expanding the partnership’s horizons to include technology, innovation, education, connectivity, and renewable energy sources was another topic of discussion.

Specifically in the special economic zones being built under the Comprehensive Economic Cooperation (CPEX), Vice Chairman NDRC emphasised the possibility of China investing more in Pakistan.

In addition to expressing confidence in the ongoing success of the two nations’ collaboration, Zhao Chenxin reiterated China’s support for Pakistan’s development aspirations.

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Pakistani government raises petrol prices

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A recent announcement states that the price of petrol has increased by Rs 9.99 per litre, to Rs 275.60 per litre.

The cost of high-speed diesel has also increased significantly, rising by Rs 6.18 a litre. Diesel is now priced at Rs 283.63 a litre.

Furthermore, kerosene now costs Rs 0.83 more per gallon.

The cost of products and services is predicted to rise in response to the increase in petroleum prices, further taxing household budgets and jeopardizing the stability of the economy.

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