Pakistan’s headline inflation reading in February hits 31.5% YoY

Consumer Price Index (CPI)-based inflation clocked in at 31.5% on a year-on-year basis in February 2023 compared to an increase of 27.6% in the previous month and 12.2% in February 2022. On a month-on-month basis, it increased to 4.3%, showed data released by the Pakistan Bureau of Statistics (PBS) on Wednesday.

As per PBS data, the food group, which commands a significant weight in the inflation reading, remained the major driver behind the increase. It increased from 166.3 in February 2022 to 241.3 in February 2023, a jump of over 45%.

The transport group witnessed an increase of 50.4% YoY.

At 31.5%, this is the highest YoY inflation since data is available – July 1965 – according to brokerage house Arif Habib Limited. Experts believe even this figure is likely to move higher in coming months.

‘Higher than expectations’: Pakistan’s headline inflation clocks in at 27.6% in January

Topline Securities said the latest reading takes “8MFY23 average inflation to 26.2% compared to 10.5% in 8MFY22”.

Ismail Iqbal Securities Limited had earlier said: “Inflation is likely to breach almost a 50-year record of 29.3% witnessed in April 1975. However, it is not likely to be the peak as most of the impact of recent sharp currency depreciation, energy price adjustments, and tax measures would reflect from March 2023.”

“We estimate February 2023 inflation at 29.6%, and March 2023 at 33.6%,” it had said.

The Finance Division had predicted inflation to remain high in the coming months at around 28 to 30% consequent to uncertain political and economic environment, pass through of currency depreciation, recent rise in energy prices, and increase in administered prices.

Its monthly economic update and outlook for the month of February released on Tuesday said that although the State Bank of Pakistan (SBP) has been enacting contractionary monetary policy, the inflationary expectation would take some time to settle.

Rural and urban inflation

CPI inflation in urban areas increased to 28.8% on year-on-year basis in February 2023 as compared to an increase of 24.4% in the previous month and 11.5% in Feb 2022.

On a month-on-month basis, it increased to 4.5% in February 2023 as compared to an increase of 2.4% in the previous month and an increase of 0.9% in February 2022.

Meanwhile, CPI inflation in rural areas increased to 35.6% on year-on-year basis in February 2023 as compared to an increase of 32.3% in the previous month and 13.3% in February 2022.

On a month-on-month basis, it increased to 4.0% in February 2023 as compared to an increase of 3.6% in the previous month and an increase of 1.5% in February 2022.

Economic woes

High inflation is just one of the woes currently putting Pakistan’s economy in distress as it also faces a balance of payments crisis.

The South Asian nation has reserves of just $3.25 billion remaining, barely enough for three weeks of essential imports. While experts are urging the government to revive the stalled International Monetary Fund (IMF) programme, policymakers have one eye on inflation and another on political capital as general elections loom.

Already, Islamabad has moved to implement inflation-inducing steps to appease the IMF, including higher energy tariffs and taxation measures to the tune of Rs170 billion. Still, the staff-level agreement between the IMF and Pakistan has not yet been reached.

Additionally, the SBP has decided to convene an emergency meeting of the Monetary Policy Committee (MPC) on Thursday to deal with the emerging risks to the economy due to uncertain developments.

On Tuesday, Moody’s Investors Service (Moody’s) also downgraded the government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa3 from Caa1.

The rating agency also downgraded the rating for the senior unsecured MTN programme to (P)Caa3 from (P)Caa1. On the other hand, Moody’s changed the outlook to stable from negative.

Moody’s said the decision to downgrade the ratings was driven by its assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a Caa3 rating.