Inflationary pressure to persist in May, warns Ministry of Finance

The Ministry of Finance (MoF) has said high inflation is expected to persist in the month of May. However, improvement in the global supply chain will ease out domestic prices in the coming months.

In its ‘Monthly Economic Update & Outlook’, the ministry said inflationary pressure in May 2023 is expected to continue as observed in the month of April.

“The potential reasons for the rising price level are flood damages, disruptions in supply chains, devaluation brought by the macro-economic imbalances and political uncertainty.

“The inflation for the month of May 2023 may remain in the range of 34-36%,” said the ministry.

The 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.

However, the Ministry of Finance was of the view that a favourable international commodity price outlook is expected to offset the negative impact of currency depreciation.

“In addition, the better crop outlook due to timely measures and expected political stability would help to achieve price stability.

Moreover, “the recent decrease in administered prices of petrol and diesel prices will be transmitted into lower domestic prices of essential items by impacting the transportation cost,” it added.

During the month of May, remittances decreased by 12.9% on a MoM basis.

“It returned to a normal trend after observing a spike in the month of March due to Eid-related factors. It is expected that remittances will increase in coming months due to Eid and other improvements in global and domestic environment,” said the report.

The report further said that the current account deficit is expected to remain in a “sustainable limit”.

The Ministry of Finance said that the country’s economy registered a 0.29% provisional GDP growth in FY2023.

The ministry attributed the decline to “challenges emanating from the uncertain external and domestic economic environment”.

“These challenges triggered CPI inflation to remain on a higher trajectory despite monetary tightening primarily due to PKR depreciation. External payments also remained burdened due to lesser foreign exchange inflows,” it said.

However, the “appropriate policy mix” by the government is expected to improve economic conditions, it added.