Pakistan’s headline inflation reading clocks in at 31.4% in September

Pakistan’s headline inflation clocked in at 31.4% on a year-on-year basis in September, the Pakistan Bureau of Statistics (PBS) said on Monday, significantly higher than the reading in August when it stood at 27.4%. On a month-on-month basis, it was up 2%.

This takes 1QFY24’s average inflation to 29.04% compared to 25.11% in 1QFY23.

In a note, brokerage house Topline Securities said the reading is in line with market expectations.

Urban, rural inflation

The PBS said CPI inflation Urban increased to 29.7% on year-on-year basis in September 2023 as compared to an increase of 25.0% in the previous month and 21.2% in September 2022.

On month-on-month basis, it increased to 1.7% in September 2023 as compared to an increase of 1.6% in the previous month and a decrease of 2.1% in September 2022.

CPI inflation Rural increased to 33.9% on year-on-year basis in September 2023 as compared to an increase of 30.9% in the previous month and 26.1% in September 2022.

On month-on-month basis, it increased to 2.5% in September 2023 as compared to an increase of 1.9% in the previous month and an increase of 0.2% in September 2022.

Market expectations

A number of brokerage houses had expected headline inflation to cross the 30% level in September.

“A lower base set in Sep-2022 may bring a blip in Sep-2023 CPI reading, projected at 30.6%,” said JS Global in a report earlier.

The brokerage house noted that a one-time power tariff adjustment of -65% month-on-month (MoM) in September 2022 led to a 115 basis point (bp) MoM dip in Sep-2022 CPI, declining the base for this month.

Meanwhile, Arif Habib Limited (AHL) another brokerage house, in its report expected inflation reading to be 31.1%.

“Looking forward, the primary factors posing risks to overall inflation include the potential for sustained pressure on both food and energy prices, alongside an imminent adjustment in gas tariffs,” said AHL.

Economic situation

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

In a major development, the International Monetary Fund (IMF) Executive Board, on July 12, approved the new nine-month, $3-billion stand-by arrangement, addressing some concerns on the balance-of-payments position.

Following the approval, Pakistan’s central bank received $1.2 billion from the IMF as the first tranche of the $3-billion SBA.

Moreover, the country also received inflows to the tune of $3 billion from bilateral partners including Saudi Arabia and the UAE.

The rise in dollar inflows helped halt the decline in foreign exchange reserves.

As per the latest data, total liquid foreign reserves held by the country stood at $13.162 billion.

During the week ended September 22, 2023, the SBP’s reserves decreased by $59 million to $7.637 billion on account of debt repayments. However, net forex reserves held by commercial banks increased by $34 million to $5.525 billion at the end of last week.

The SBP Monetary Policy Committee (MPC) also kept the key policy rate unchanged at 22% in its latest announcement last month, beating the market consensus of hike.

The central bank in its statement had said the decision takes into account the latest inflation outturn reflecting the continuing declining trend in inflation from its peak of 38% in May to 27.4% in August.

“Even though global oil prices have risen recently and are being passed on to consumers through adjustment in administered energy prices, inflation is projected to remain on the downward trajectory, especially from the second half of this year.

“As such, real interest rates continue to remain in positive territory on a forward-looking basis,” SBP said in a statement.