If inflation reaches 25%, how expensive will it be?

 It is a well-known fact that the prices of petroleum products in Pakistan have tripled in the last few weeks and inflation has risen sharply. However, the figures presented by the government, opposition and experts in this regard. Probably few people understand the Gorkha fog.

According to former finance minister Shaukat Tareen, the inflation rate in Pakistan has risen to more than 28%, while according to economist Dr. Ashfaq Ahmed, inflation has risen to 25% compared to last year.

Prices of 51 basic commodities also rose by 27.8 per cent in the same week last year, according to official data released this week.

According to the Pakistan Bureau of Statistics, the inflation rate last month was 13.7% according to the CPI index, the highest in two years. Earlier, in January 2020, inflation was more than 14%.

How are inflation data collected?

Talking to Urdu News, economic analyst and journalist Mehtab Haider said, “Rising inflation in Pakistan is measured according to a scientific method. There are two main scales in this regard. One is the small scale called SPI which measures the weekly price increase of important commodities. There is a large scale in which the prices of most commodities are measured on a monthly basis across the country, called the Consumer Price Index (CPI).

"The general impression is that a 25 per cent increase in CPI means that the prices of eggs, pulses, rice, sugar, petrol and everything else have gone up by 25 per cent, but this does not happen, but every few years for the consumer price index," he said. A family budget survey is then conducted to compile a set of goods and services commonly used by the population called CPI basketball. The prices of the various items in the basket are monitored.

In the CPI basketball, the expenditure of Pakistanis is calculated by dividing it into several parts, according to which a Pakistani spends an average of 34.58% of his family budget on food items.

26.68% of the family budget is spent on rent, electricity, gas, water bills and fuel, 8.6% on clothing and footwear, while 6.9% on hotel, about 6% on transport, more than 4% on home decoration 3.8% is spent on decoration and repair, and 2.7% on health.

The Pakistan Bureau of Statistics collects price data from urban and rural areas of the country. According to Mehtab Haider, all these figures are taken together and an average is calculated and this average increase is called the rate of inflation on a monthly basis under the 'Consumer Price Index'.

For example, the price of food with a weightage of 34% has increased in May this year as compared to May last year. A 25 per cent increase would mean that if tomatoes were Rs 100 per kg last year, they would be Rs 125 per kg this year.

He added that similarly, if ghee, sugar, pulses and other sub-food items are combined, if they increase by about 20 per cent, then the share of CPI will increase by about one-third to 20 per cent. If house rents, electricity, gas, etc. prices go up by 30%, then a quarter CPI went up by 30%. In this way, the average inflation of the whole basket is calculated and then the rate of inflation comes to the fore.

Inflation will hit middle and lower classes hard

Dr. Abid Qayyum Silhari, an economist and executive director of SDPI, thinks that in order to know the rate of inflation, one must first look at how expensive the energy requirements have become, that is, how much the prices of petrol, electricity and gas have gone up.

He said that after the abolition of subsidy, petrol has already become very expensive and now if a monthly levy of Rs. 5 was imposed, its price would go up further.

Similarly, the basic price of electricity per unit will also increase by Rs 8 and gas will also be 44 to 45 per cent more expensive. That is, if the gas bill now comes to Rs 100, it will be Rs 150.

According to Dr. Abid Qayyum Silhari, “When the price of these three items goes up, the rest of the items are attached to them and their prices also go up. Also Similarly, as electricity becomes more expensive, industrial production becomes more expensive and when the rupee depreciates, the price of imported goods goes up.

"This simultaneous increase will have a devastating effect on the middle class and the lower classes," he said.