Pakistan’s average headline inflation, as measured by the Consumer Price Index (CPI), contracted to 23.4% in the fiscal year 2023-24, a significant reduction from the previous fiscal year’s 29.2%, according to the Pakistan Bureau of Statistics (PBS).
In June 2024, the CPI inflation stood at 12.6% year-on-year, higher than May’s 11.8%. On a month-on-month basis, the inflation rate increased by 0.5%. This rise aligns with market and government expectations. Brokerage house Topline Securities noted that the figures met their forecast, echoing the sentiments of the Ministry of Finance.
The Ministry of Finance, in its ‘Monthly Economic Update and Outlook’ report, had anticipated a slight increase in June’s inflation compared to May, attributing the rise to higher prices of perishable items due to Eid ul Adha. The report highlighted the government’s ongoing efforts to stabilize prices by managing supply and demand, presenting a more optimistic inflation outlook.
Several brokerage houses had made similar projections. JS Global forecasted a CPI inflation rate of 12.5% year-on-year for June 2024, bringing the fiscal year’s average to 23.8%. This continued the downward trend observed since the previous month’s 11.8%, compared to 17.3% in April 2024 and a stark decrease from June 2023’s 29.4%. Similarly, AKD Securities Limited projected a 12.55% year-on-year increase for June 2024, slightly higher than May’s 11.76%.
The PBS data further detailed that urban CPI inflation in June 2024 was 14.9% year-on-year, up from 14.3% in May and significantly lower than June 2023’s 27.3%. Month-on-month, urban inflation increased by 0.6% in June 2024, compared to a 2.8% decrease in May and a marginal 0.1% increase in June 2023. Rural CPI inflation rose to 9.3% year-on-year in June 2024 from 8.2% in May and 32.4% in June 2023. On a month-on-month basis, rural inflation increased by 0.3% in June 2024, compared to a 3.9% decrease in May and a 0.8% decrease in June 2023.
In a notable policy shift, the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decided to reduce the key policy rate by 150 basis points (bps), bringing it down to 20.5%. This marked the first reduction in the key policy rate in four years.
The MPC’s statement acknowledged the significant decline in inflation since February, noting that the May figures were better than previously anticipated. The committee highlighted that underlying inflationary pressures were subsiding amidst a tight monetary policy stance, supported by fiscal consolidation. This was evident in the continued moderation of core inflation and easing inflation expectations among consumers and businesses, as indicated by recent surveys.
However, the MPC also cautioned about potential risks to the near-term inflation outlook, linked to upcoming budgetary measures and uncertainty regarding future energy price adjustments. Despite these concerns, the MPC expressed confidence that the cumulative impact of earlier monetary tightening would continue to restrain inflationary pressures.
The reduction in headline inflation to 23.4% for FY24 signifies a positive step towards economic stability for Pakistan. However, the government and monetary authorities remain vigilant, balancing policy measures to sustain this downward trend while addressing any emerging economic challenges.
