Spiraling inflation stokes dangerous fire

Dunya Executive - - COMMENTARY - Ismet OZKUL Columnist

There has been significant deterioration in all areas of inflation over the past year. This attack has pushed consumer inflation to the verge of 12% and producer inflation above 17%. With these increases, inflation climbed to its highest level since October 2008. Inflation has obviously reached a new crisis point. Producer price inflation is much higher than consumer inflation. The higher trend in producer inflation indicates that consumer inflation will not be falling in the coming months because cost increases among producer prices will eventually reflect on consumers.

The fastest and sharpest increase among producer prices is the inflation for intermediate goods, which has soared to 24.30% – 7% higher than producer price inflation and more than double consumer prices. Such high inflation for intermediate goods indicates that the industry will have to reflect these cost increases on consumer prices in the coming months – and that will eventually reflect on consumer inflation.

Another significant point is that consumer inflation is almost equal to core inflation, a trend that has been ongoing since July. Core inflation, where energy, food and beverages, spirits and tobacco products as well as gold, increased to 11.82% in October, while consumer inflation stands at 11.90%. It means inflation for items excluded from core inflation is equal to core inflation itself. In other words, high inflation is diffused across all consumption items. Sadly, there are no exemptions among inflationary items to indicate a recovery ahead.

Inflation has become a structural gangrene penetrating all inflationary fronts and has built up a new attack over the last couple of months. There is a spiral here feeding on vulnerabilities and economy and political defects. Tainted foreign affairs and policy risks fuel foreign exchange rates, foreign exchange rates fuel inflation, and interest rates and inflation then fuel foreign exchange rates and inflation. This spiral of fire is only growing stronger.

The outlook and course of events are really alarming. But more alarming is that those responsible for stoking this fire are failing to reveal any reassuring and credible policies.

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