Prices are rising for just about everything, forcing millions to make increasingly difficult choices as the festive month of Ramzan and Eid are just ahead.
Markets are anticipating expressively lower Eid sales, which usually continues till late night of the last day of Ramzan. Eid related shopping last year is estimated to be around Rs800 billion, and this year the business is likely to shrink around Rs250 billion.
“There won’t be over 20 per cent of the business activity that we saw last year,” Atiq Mir, Chairman All-Karachi Tajir Ittehad, said. “People are struggling to put meal on table twice a day, let alone shopping.”
Eid is the biggest holiday of the year in Pakistan, when families get together and relatives and friends exchange gifts and dress up in new clothes. In the run-up to celebrations, markets traditionally observe a surge in shopping, with people buying jewelry, clothing, shoes and other accessories etc.
Consumers have been deprived of their buying capacity given super inflation, and they will be spending most of their income on fuel and utilities.
“Factories are approaching retailers and wholesalers, but they are not even placing orders. They are mostly cash starved, since they haven’t been able to sell their inventories from last couple of months,” Mir said.
People will also be reducing their spending on edibles going forward. As a pattern prices of edibles particularly fruits, vegetables and pulses surge in the first week of the holy month. This can be attributed to over-profiteering amid higher demand. In the later part of the month, focus is shifted towards Eid shopping.
Waheed Ahmed, Former Vice President of Federation of Pakistan Chambers of Commerce Industry (FPCCI), said there would be lesser fruits and vegetables this Ramzan, and prices will be higher.
“Prices of edibles surge in the early part of Ramzan, and then they recede. This is a pattern and same is expected this season.” He said prices of certain vegetables were already easing as the supplies had been restored and local produce was also finding its way to the market.
Eid festivities were slower during the health crisis over the past couple of years as fear, uncertainty and Covid-induced restrictions squeezed space for people to celebrate freely. Even pre-Covid, the sharp drop in GDP growth rate in 2019 had exerted pressure on household budgets, affecting the annual Eid spending graph in the country.
Traders say the spending pattern is quite different this year due to high inflation. As discretionary spending is skewed towards food and other necessary items, the demand for other items is not strong.
While consumers and markets have witnessed a price spiral in the last year, the government is not in a position to offer any huge subsidies or duty/taxes relaxations to lower prices. Any efforts to curtail prices by lowering taxes and duties may irk the IMF.
The government recently raised the general sales tax (GST) on many items to 18 per cent from 17 per cent and 10 per cent federal excise duty on fruit juices, making ghee/cooking oil and packed juices costlier.
Moreover, on March 02, 2023, the State Bank of Pakistan (SBP) hiked the policy rate by 300bps to 20%. The hike comes as Pakistan seeks to revive the IMF program to unlock financing of $1.1 billion.
The central bank conveyed that the sharp monetary tightening cycle had been driven by inflationary pressures, which saw CPI cross the all-time high levels of 30 per cent in February 2023.
SBP mentioned that the economy might witness additional inflationary pressures led by the recent rupee depreciation. Given these factors, the SBP revised its inflation forecast to 27-29% for FY23, up from the original 21%-23% shared back in November 2022.
The central bank also discussed core inflation, which rose to 21.5% in the rural region. As a result, the SBP felt a strong policy response was necessary to ensure inflation expectations remained anchored.
The central bank discussed Pakistan’s weakening forex reserves position and emphasized the need for reviving the IMF program to address external account challenges.
These external challenges were credited as the prime reason for the rupee weakness, which saw the currency depreciate to Rs285/USD.