An upcoming food shock?

Pakistan’s May inflation data reveals a mixed but concerning food price trend. While headline CPI rose 11.7% year-on-year, food inflation stands at 7.9%, with non-perishable staples like wheat and wheat flour seeing sharp increases—urban wheat up 62.2% and rural wheat up 63.5%. Perishables like tomatoes, vegetables, and chicken remain unstable, masking deeper price pressures on essential goods. The government has responded to fuel price shocks with temporary subsidies, including a 0.1% of GDP relief for oil marketing companies and targeted aid for vulnerable groups, such as small farmers and motorbike owners. However, these measures are budget-neutral under an IMF program, meaning costs are offset elsewhere, leaving little fiscal flexibility for a broader food crisis. A greater risk lies in fertilizer supply, particularly DAP, which could disrupt Kharif planting decisions if disruptions persist. Farmers may delay planting, switch crops, or accept lower yields, with delayed impacts on market arrivals and farmgate prices. The IMF expects limited food inflation effects from the Middle East war, but rising fuel costs—critical for irrigation, transport, and cold chains—could worsen supply chain strains. Climate risks add to the uncertainty, with an El Niño forecast increasing the likelihood of prolonged dry conditions. While not an immediate shock, such weather patterns could exacerbate agricultural pressures, further straining food security. Pakistan’s constrained budget and reliance on commodity imports leave it vulnerable to both external shocks and domestic supply-chain disruptions.