Pakistan’s headline inflation in April at record high, hits a distressing 36.4%

Consumer Price Index (CPI)-based inflation clocked in at a record high of 36.4% on a year-on-year basis in April 2023 compared to an increase of 35.4% in the previous month and 13.4% in April 2022. On a month-on-month basis, it increased to 2.4%, showed data released by the Pakistan Bureau of Statistics (PBS) on Tuesday.

“This is the highest year-on-year inflation since the available data i.e. July 1965,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL), told Business Recorder. “This takes 10MFY23 average inflation to 28.2% compared to 11% in 10MFY22.”

As per PBS data, the food group, which commands a significant weight i.e. 34.58% in the inflation reading, remained the major driver behind the increase. It increased from 176.38 in April 2022 to 261.17 in April 2023, a jump of over 48%.

The transport group witnessed an increase of 56.77% YoY.

The CPI inflation figures were “lower than expectations”, said Mustafa Pasha, Chief Investment Officer at Lakson Investments.

The analyst said the market consensus estimate was 37.50%. “Expect a 40% above number in May as CPI starts to peak,” he posted on social media.

Ismail Iqbal Securities had earlier stated in a report that CPI-based inflation for April 2023 is projected to clock in at 38% YoY.

“The surge on MoM basis is mainly due to higher wheat prices, clothing, and quarterly house rent revision,” said the brokerage house.

“Meanwhile, core inflation is also expected to remain around 2.5% MoM, reflecting the impact of supply chain issues, PKR devaluation, and second-round effects of increase in energy prices,” it added.

Meanwhile, the Finance Division in its latest Monthly Outlook report had also predicted inflation to remain at an elevated level in the months to come.

“Its key drivers are food and energy price hikes. Further, currency depreciation and rising administered prices have contributed to jack up overall price level,” read the ministry’s monthly economic update and outlook for the month of April released on Saturday.

The Ministry of Finance admitted that despite the contractionary monetary policy of the State Bank of Pakistan (SBP), inflationary expectations are not settling down.

“Inflation is expected to remain in the range of 36-38% for April, 2023,” it had said.

Rural and urban inflation

CPI inflation in urban areas increased to 33.5% on year-on-year basis in April 2023 as compared to an increase of 33% in the previous month and 12.2% in April 2022.

On a month-on-month basis, it increased to 2% in April 2023 as compared to an increase of 3.9% in the previous month and an increase of 1.6% in April 2022.

Meanwhile, CPI inflation in rural areas increased to 40.7% on year-on-year basis in April 2023 as compared to an increase of 38.9% in the previous month and 15.1% in April 2022.

On a month-on-month basis, it increased to 3% in April 2023 as compared to an increase of 3.5% in the previous month and an increase of 1.6% in April 2022.

Economic distress

High inflation is just one of the issues currently putting Pakistan’s economy in distress.

The South Asian country has been faced with a barrage of woes with a perceived default risk and a downgrade by international rating agencies reflecting the state of the economy that has also had to bear major political turmoil and frequent change in key leadership.

At the same time, its bailout programme has remained stalled since November last year. The International Monetary Fund (IMF) programme is critical for Pakistan, and the two have been negotiating since early February to resume funding, part of the bailout agreed upon in 2019.

Meanwhile, the SBP Monetary Policy Committee (MPC) is currently scheduled to meet next month on June 12, 2023.

“Considering persistent inflationary pressures, and the absence of an IMF program, another rate hike cannot be ruled out. The SBP might look to hold another earlier than-scheduled MPC meeting,” said Ismail Iqbal Securities last week.