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Vegetable Cost Increased 500%, Threaten Pakistan’s Inflation

Food is becoming unaffordable in Pakistan, which has been devastated by flooding, and skyrocketing cost of tomatoes, potatoes, and onions raise the possibility that inflation may approach 30%, which might lead to more monetary tightening.

A third of the country was drowned by heavy rains, which also devastated crops in the South Asian nation, which is already struggling with declining foreign exchange reserves and the fastest inflation in nearly five decades. At the weekend, eight additional districts were added to the list of 80 flood-affected locations across the nation.

According to Ali Asghar Londer, one of the hundreds residing in evacuee tents in Dadu, onions were sold for 300 rupees ($1.37) per kilo as opposed to 50 rupees before the floods, a city near the western bank of the Indus River. Dadu has seen the biggest damage to its rice and onion production.

According to Londer’s report from last week, the price of tomatoes has increased by 300% to 400 rupees per kilogramme, the price of potatoes has increased by four times, and the price of ghee, a cooking oil, has increased by 400%. Dairy and meat supply were also affected elsewhere because storage flooded.

Also Read: Pakistan Experiences Its Highest Inflation Rate In Over 50 Years

An already fragile and politically divided economy that has recently begun to regain some financial strength thanks to a $1.16 billion bailout from the International Monetary Fund and $9 billion in pledges from Qatar, Saudi Arabia, and the United Arab Emirates will be put under additional strain by the rise in food prices.

More than 1,300 people have died as a result of the floods, which are expected to cause $10 billion in damage and have pushed 500,000 into camps. It’s also submerged large swathes of farmland and flushed away crops in a country where agriculture accounts for about a fifth of the economy.

Inflation Impact

In Sindh province, the entire cotton crop spanning 1.5 million acres, as well as 65% of the region’s rice output have been wiped out, according to Finance Minister Miftah Ismail. The entire production of dates, 20% of sugarcane and half of its onions and other vegetable crops have also been destroyed.

Still, Ismail was sanguine in an interview on Sept. 3, saying vegetable prices are coming off and that inflation at a 47-year-high is close to its peak and likely average at 15% this year. Analysts aren’t as optimistic.

“The main concern from the floods is the impact on inflation,” said Amreen Soorani, head of research at JS Global Capital Ltd. “Food shortage from floods the last time in 2010 almost doubled food inflation in two months. We’re already in a high inflationary environment, making the scenario even more difficult.”

Consumer price gains quickened to 27.26% in August, rising for a sixth straight month before the full impact of the flooding is felt. Food inflation, that makes up a third of the basket, climbed to 29.5% last month. The calculus doesn’t include yet the full impact of energy prices rising by 50%, a condition of the IMF loan.

Inflation could accelerate to 30% in the coming two months and that would take the average price gains this fiscal year to 23%-24%, surpassing the central bank’s estimate of 18%-20%, according to Fahad Rauf, head of research at Ismail Iqbal Securities Pvt.

Vegetable prices have started to ease in Karachi as imports arrive, Rauf said. Pakistan is purchasing onions and tomatoes from Iran and Afghanistan to plug the shortage.

Former Prime Minister Imran Khan, who was ousted in April yet remains very popular, is waging a fierce campaign to press for elections, and the devastating floods is stoking public anger.

“It’s been four days that our children are sitting on the road awaiting food and shelter. Our children are dying,” said Mohammad Sharif, 40, a protest leader who last week blocked one of the nation’s main highways for a few hours after not getting any relief goods. “We have no food, no tents, nothing.”

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