Just five months ago, inflation in India seemed to be well under control. On June 11, Bloomberg reported that Indian wholesale prices had increased just 0.13 percent in the last week of May. That was the lowest rate of inflation in 30 years.
What a difference five months makes. Now both inflation and inflationary expectations are rising fast. As India Knowledge@Wharton noted:
The IMF, which in March 2009 projected inflation of just 2% for the fiscal year ending March 2010, now sees inflation at 8.7% for the calendar year of 2009. In October, its Regional Economic Outlook warned: “In India … industrial production is recovering rapidly, and core inflation and inflation expectations are rising.”
India, of course, is the region’s largest and most geopolitically important country. But according to AFP, it’s not just India that has experienced an abrupt increase in inflation. The entire south Asia region is under siege:
In the third quarter of 2009, inflation in South Asia, which aside from the Maldives comprises India, Pakistan, Nepal, Bangladesh, Afghanistan, Sri Lanka and Bhutan, hit an average 10.9 percent, the World Bank said.
The biggest cause: skyrocketing food prices. In India, for example, the price of sugar has increased 45.7 percent from last year. The price of potatoes is up 96.4 percent. The price of onions: up 37.6 percent.
Another cause: rising electricity prices. In Pakistan, a restaurant owner claims his electricity bill has doubled since General Pervez Musharraf was forced to resign just over a year ago.
Not surprisingly, the middle class has noticed. As AFP notes, higher prices for basic staples like food and energy are increasing dissatisfaction with a Pakistani government that had already been unstable:
In a country with huge disparity in wealth, life has always been a struggle for the third of the population that lives below the poverty line but now lower-middle class and professional families find it increasingly difficult to make ends meet.
The rupee has depreciated by 35 percent in the last year while electricity, gas and petrol prices have doubled in the last two. The country faces a crippling energy crisis, producing only 80 percent of its power needs, causing debilitating blackouts and suffocating industry.
Price hikes and shortages of essential items such as sugar and flour complicate housekeeping and exacerbate the rock-bottom unpopularity of President Asif Ali Zardari, head of the Pakistan People’s Party (PPP).
The experience of India, Pakistan, and other south Asian countries offers two helpful reminders. First, when inflation arrives on the scene, it can spiral out of control more quickly than just about anyone expects. Second, inflation is not just an economic problem, but also a political one.
Dr. Duru