Pakistan, like any other country in the world, was severely affected by the global pandemic. And the most common indicator of such a setback was rising inflation in the country. From daily utility items to luxurious ones, the prices of everything rose to an unprecedented level. And the rising inflation only affected the living conditions of people, making them even worse off. Before expanding on the topic further, let’s first discuss what inflation is and then see its interplay with Pakistan’s economy, especially on the apparel sector.
To see the interplay of inflation with consumer shopping behavior, we have to understand what inflation really is.
What Gives Rise to Inflation?
Inflation refers to the increase in the price of all goods in a country. The effects of inflation are observed across the board, on both goods as well as services in an economy. A country can undergo through a period of inflation due to multiple reasons. When the central bank or any other monetary authority of the country increases its money supply, the value of its currency is diluted, which leads to inflation. Likewise, if the demand for goods and services in an economy exceeds its supply, a shortage of goods and services is observed. In order to bridge the gap between the demand and supply in the economy, the government has to raise the prices which again leads to inflation.
Inflation in Pakistan
Pakistan’s monetary policy is geared toward overvaluing the currency. This practice has been followed for the last 2 to 3 decades which has done nothing but aggravated the living conditions of the poor. Overvaluing your currency results in a decrease in inflation and is good for a country during a period of economic boom. But the opposite is true if a country is experiencing a sluggish growth rate, as is the case with Pakistan. The recent government did claim that it put a halt to currency devaluation. Still, on the flip side, it borrowed more funds from the IMF. This induced the trade deficit to spiral down further and the socio-economic position to weaken on the global scale. All of these factors, working in tandem, made our economy suffer a great deal, especially during the global pandemic.
As stated earlier, the effects of the price increase apply to all the sectors in the economy. But some sectors or markets offer goods and services that have more elastic demand than others. The demand for goods and services are always negatively affected for sectors which have an overall elastic demand. Let’s analyze the impact of covid-19 and the ongoing lockdowns on the apparel sector in Pakistan.
Impact of Inflation On the Apparel Industry
According to CPI, the prices of clothing articles in Pakistan have gone up by 10.4 percent over the year. The reason for this price hike follows the fundamental laws of economics as it was the direct consequence of an enormous decrease in the demand for clothes. The demand for clothing articles, under normal economic conditions, is relatively inelastic, but during covid-19, it became uniform elastic. The reason for the shift in the price elasticity of apparel demand was fairly obvious. The apparel and textile manufacturers are also facing issues due to this.
The shift in consumer shopping behavior:
When the outdoor activities of every household were discontinued, their shopping behaviors changed. People stopped buying clothes because there was no prospect of going outdoors or attending any social event. Consumers’ shopping behavior also affected clothing brands’ behavior. Due to a rapid decrease in demand for apparel, they started unloading their existing inventory and laying off their existing workers. This helped them lower their prices without the fear of having to exit the industry. But soon after the government lifted its ban on arranging outdoor activities and social events, the consumers did a 180-degree turn and started buying more clothes.
Demand counterbalanced by price:
The sudden uptick in apparel demand needed to be offset by an increase in price; hence the prices of clothing articles were raised across the country. From high-end leather jackets to hijab caps price, all increased encompassed every clothing item across all clothing stores, including both luxury brands and market retailers. Besides the increase in demand, the global supply chain also experienced disruptions leading to shipping delays and a shortage of shipping containers. The fuel cost to transport goods from one country to another also reached an astronomical level. Due to Covid-19 protocols, so many factories closed down, and boats and cargoes spent weeks at ports, causing order cancellations and delays.
Post-Lockdown and Government Responsibility
The impact of pandemic-induced lockdowns on the apparel industry was not just restricted to Pakistan. Countries like India, Bangladesh, and China, are counted as some of the biggest exporters of garments. But despite this, they suffered great losses. When it comes to Pakistan, textile is one of the most important sectors of the economy. It is the impetus that boosts economic growth, as it creates jobs and promotes industrialization.
The government should act strategically and readily to restructure the economy now that the bans are lifted globally. It should make allowances for import items that are required for the production of the final product. Pakistan’s trade policy hasn’t been announced yet, which puts a huge question mark regarding long-term objectives for country’s international trade. The government has to come up with a proper piece of information in a single document to help businesses prosper and reduce their cost. Whereas the trade policy has to be complete, cooperative, and reformative.
