Karachi, November 29, 2023 – Analysts at Insight Research have predicted that Pakistan’s headline inflation for November 2023 is likely to surge to a staggering 28.6%, catching both industry experts and the State Bank of Pakistan (SBP) off guard.
This unexpected spike represents a 2.1% month-on-month (MoM) increase, primarily propelled by a remarkable 280% surge in gas tariffs. The inflationary surge defies earlier expectations of a gradual slowdown in inflation from September 2023 onwards.
The sharp increase in inflation is primarily attributed to the adjustment of recently imposed fixed charges within the gas tariff structure. This surge follows the Sensitive Price Indicator (SPI) released on November 16, which disclosed a staggering 480% increase in gas prices. Although there has been a reflection of declining fuel prices and a month-on-month decrease in the Foreign Currency Account (FCA), the impact of the abrupt hike in gas tariffs is still expected to drive inflation to 28.5% during the first five months (July – November) of the fiscal year 2023-24, compared to 25.2% in the same period last year.
Within the SPI basket, specific items witnessed significant price hikes during the review period. Tomatoes recorded a notable increase of 55.6%, followed by Onions (18.1%), Potatoes (11.9%), Tea (11.7%), and Fresh Vegetables (6.7%). Conversely, prices of Motor Fuel declined by 10.8%, Gur by 8.5%, Sugar by 5.9%, Fresh Fruits by 3.5%, and LPG by 3.3% during the same month.
Looking ahead, analysts expect inflation to follow a downward trajectory, primarily due to the high base effect. Maintaining stability in the local currency and implementing vigilant administrative oversight by the government are deemed essential to shield inflation from potential disruptions. The recently implemented axle load regime is also expected to impact the prices of goods, potentially putting pressure on overall price levels.
The average inflation for the fiscal year 2023-24 is estimated to be around 24.1%, compared to 29.0% in the previous fiscal year. Taking into account the higher impact of the gas price hike, the 12-month forward inflation forecast stands at approximately 19.8%.
Analysts believe that the SBP is likely to maintain the interest rate in the upcoming Monetary Policy Committee (MPC) meeting due to the higher than estimated Consumer Price Index (CPI) in November 2023. However, considering the high base effect in the second half of fiscal year 2023-24, the central bank may opt to initiate an easing cycle in the first quarter of calendar year 2024. As the nation grapples with these economic challenges, stakeholders will be closely watching for policy responses and their impact on the broader economic landscape.
