Rising prices of tomatoes, potatoes and onions are putting food out of reach in flood-ravaged Pakistan, raising the specter of inflation reaching 30% that may spur further monetary tightening.
Read also| Pak Floods: Death Toll Approaches 1,300; the fear of outbreaks of water-borne diseases looms large
The South Asian nation, already reeling from dwindling foreign reserves and the fastest inflation in nearly five decades, is facing food shortages after torrential rains submerged a third of the country and destroyed crops Eight more districts were added over the weekend to the country’s calamity list of 80 flood-hit areas.
The gradual increase in onion prices
Onions sold for 300 rupees ($1.37) a kilo from 50 rupees before the floods, according to Ali Asghar Londer, one of thousands living in evacuation tents in Dadu, a town near the west bank of the river indus Dadu has seen the biggest damage to its rice and onion production.
Read also| Pakistan’s inflation hits 47-year high ahead of full impact of floods
The cost of potatoes has quadrupled to Rs 100 a kilo, tomatoes have risen 300 per cent to Rs 400 a kilo, while ghee, a fat used for cooking, has risen 400 per cent, Londer said last week. Elsewhere, dairy and meat supplies were also affected as warehouses flooded.
An additional problem
Rising food prices will add stress to an already fragile and politically divided economy that has just regained some financial strength after securing a $1.16 billion International Monetary Fund bailout and $9 billion in pledges from Qatar, Saudi Arabia and the United Arab Emirates.
The floods, which will cost an estimated $10 billion in damage, have killed more than 1,300 people and forced half a million into camps. It has also submerged large tracts of farmland and wiped out crops in a country where agriculture accounts for about a fifth of the economy.
Impact of inflation
Although Finance Minister Miftah Ismail was upbeat on September 3, saying vegetable prices are falling and inflation is nearing a 47-year high and likely the 15-year average % this year, analysts were not so optimistic.
“The main concern of the floods is the impact on inflation,” said Amreen Soorani, head of research at JS Global Capital Ltd. “Food shortages from floods last time in 2010 almost doubled food inflation in two months. We are already in a high inflationary environment, which makes the scenario even more difficult.”
Consumer price gains accelerated to 27.26% in August, rising for the sixth consecutive month before the full impact of the floods was felt. Food inflation, which accounts for a third of the basket, rose to 29.5% last month. The calculation does not yet include the full impact of a 50% increase in energy prices, a condition of the IMF loan.
Inflation could accelerate to 30% in the next two months and that would bring average price gains this fiscal year to 23%-24%, beating the central bank’s estimate of 18%-20%, according to Fahad Rauf, head of research at Ismail Iqbal Securities Pvt.
Citizens in difficulty
Former Prime Minister Imran Khan, who was ousted in April but remains widely popular, is waging a fierce campaign to press for elections, and the devastating floods are stoking public anger.
“For four days our children have been sitting on the road waiting for food and shelter. Our children are dying,” said Mohammad Sharif, 40, a protest leader who blocked one of the country’s main roads for hours last week after not receiving any relief goods. “No we have food, no tents, nothing.”
