There are no prizes for saying that Pakistan has an inflation problem. Double-digit inflation in food, fuel and commodities are writ large. Almost every week, we see labourers rallies in the countrys industrial centres, public protests and concerns raised by the media and civil society on price hikes. All the while, the government is being regularly warned by economists and keen observers against its intention to raise fuel and energy prices or cut essential subsidies. The critics believe that, without a proper planning, this policy is bound to unleash another backbreaking wave of an all-round price hike. While the political elites concern for the common mans woes is quite touching in its self-serving hypocrisy, the fact of the matter is there are no easy answers. The general criticism that one hears pins the blame on the technocrats, who man the ship of Pakistani finance, accusing them of not really comprehending how to tame the dragon of inflation. In reality, however, is that the mess is so messy that even they cannot be blamed entirely The nature of inflation is somewhat structural and complex its solution difficult. Ever since the days of Walter Bagehots Lombard Papers in the 19th century, bank collapses, financial panic, monetary expansion and real economy have consistently formed a remarkably pedagogical quartet. Nevertheless, modern central banking has largely been a by-product of institutional responses to structural issues that emerged during the interregnum between the two world wars and thereafter in the industrialised world. This world was, and now is, marked by monetary transmission mechanisms that propagate extensively throughout the economy. Modern monetary policy is hand in glove with a macroeconomic industrial policy that is embedded in an environment marked by standardised terms of financing, legal frameworks, risk management, credit policies, financing strategies, etc. Other than the idiosyncratic details that industries (say chemicals vs. semi-conductors or sugar vs. textiles) have, their underpinning and incentives are similar. In contrast, the developing world, for example Pakistan, has self-evident structural cleavages that impair conventional monetary policy and reduce its efficacy. As is becoming increasingly clear, Pakistans inflation is generated by the 'supply side. Consistently week monsoons (over the last four to five years), food hoarding, governmental subterfuge, who connive with the powerful and rich farming lobbies et al, have contributed to it. It is clear that with this cost push inflation, the State Bank of Pakistan (SBP) fights the battle with one hand tied behind its back. To make matters worse, with the scale of uneven economic growth, the SBP has no real tools to affect the cost of capital, especially in the remote areas of Pakistan, except in a sledgehammer manner by raising the benchmark rates, which eventually trickles down to the small town loan/credit giving mechanisms (if at all it exists in the first place). Yet, the politics of raising benchmark lending/borrowing rates is dominated by the cartel of big banks in Pakistan, and if the inflation story is anything to go by, inflationary pressures across Pakistan have different sources, feedback loops different from any that the SBP can control or meaningfully affect. To make this hypothesis clearer, it is instructive that the SBP has yet again intervened to affect the cost of borrowing and lending by a minimum of 50 basis points in the last 60 days. Further, the rate hikes in implementation tend to be asymmetric where the borrowing rates go up more than the lending rates. The two rate hikes in a short period of time and the fact that the credit reserve ratio (the proportion of deposits that banks must hold as cash) has also pretty much been kept undisturbed, leads us to argue that in essence banks are being overtly helped by the apex body to remain liquid. That is because on their own commercial banks (big and small players) have been unable to significantly raise their deposits. In contrast, as changing the rates of borrowing and lending affects marginal behaviour and adversely affects the cost of capital investment, it may not be such a good idea. The explicit effect of such rate hikes, as per theory, and some heuristics, is that new projects may not take off and the current projects, tottering on the edge of financial feasibility, might slowly just peter off over time. None of this, however, gives one the confidence that inflation is any time likely to taper off. Although it has not yet happened in Pakistan, it is perhaps important to remember that, according to a given international norm, any sort of victory can only be claimed when inflation shows a minimum 18 months downward trend and the food prices drop month-over-month into single digit levels. Surely, some thinking must be going on within the SBP that, given our economic environment, the solution to inflation lies in structural reforms and not in basic monetary tightening. To use the word 'structural is often a euphemism to say that political actors have played the system of food-hoarding and credit-lending at the grassroots level. Basically, it means that rigging the structure of food price mechanism tends to be mainly responsible for abnormal and quick price increases, as, for example, of food items. In fact, in India we saw that last month in his quarterly report, the Deputy Governor of the Reserve Bank, Subir Gokarn, was courageous enough to own up to these weaknesses in the local marketplace In essence the point one is trying to make is that the Central Bank can do only so much and no more. The travesty is that there is a consensual hallucination in much of the media, businesses and public that, somehow, as far as the inflation goes the buck stops with the SBP. Nothing, however, could be further from the truth. To successfully tame the monster of inflation the politics or governance of Pakistan has to make quick and systematic improvement in food storage, irrigation and agriculture yields; reduce the number of monopolistic pricing companies; ensure greater investment in agriculture and manufacturing; and undertake effective risk management. It is important to remember that all these steps are prerequisites to a well functioning monetary system in an economy dominated by agriculture. Failing which monetary policy will be a hand maiden of the powerful price mafias with little or no meaningful impact on more than 70 percent of the Pakistani population. A silver lining, if there is any, is that one hopes these rounds of inflationary spirals in food and commodities will generate the much needed public pressure on political managers to muster the will to improve and professionalise national governance. For the foreseeable future, though, we as Pakistanis need to come to grips with the hard and tough fact that our Central Bank (SBP) can only play a fire-fighting role, because the real solution of inflationary pressures lies with the performance of our political governments at various tiers in the country The writer is an entrepreneur and an economic analyst Email: kamalmannoo@hotmail.com