For two years, economy in grip of stagflation

Ask anyone what’s been troubling them the most lately, and at least nine out of ten will say it’s the relentless price rise. The last financial year (FY24) ended with an average CPI inflation of 23.41%, compared to 29.18% in FY23 and 12.15% in FY22. Simultaneously, the economy grew by 2.4% in FY24, contracted by 0.2% in FY23, and grew by 6.2% in FY22. These indicators unmistakably show that the country has been in the grip of stagflation—a combination of high prices and low growth rates—for the past two years. A mix of domestic and external factors has pushed the economy into this dire situation. In recent years, several economies, both developed and developing, have faced stagflation, though for shorter periods. The issue began with the COVID-19 pandemic, which severely restricted the movement of people and goods, stalling economic growth worldwide. According to the International Monetary Fund (IMF), in 2020, the year the pandemic emerged, advanced economies contracted by an average of 3.9%, including a 2.2% contraction in the US and a 10.4% contraction in the UK. Similarly, developing and emerging (D&E) economies contracted by an average of 1.8%, with Pakistan shrinking by 0.9% and India by 5.8%.