Pakistan’s headline inflation reading clocks in at 26.9% in October

Pakistan’s headline inflation clocked in at 26.9% on a year-on-year basis in October, the Pakistan Bureau of Statistics (PBS) said on Wednesday, significantly lower than the reading in September when it stood at 31.4%. On a month-on-month basis, it was up 1.1%.

This takes July-October’s average inflation to 28.48% compared to 25.48% in same period last year.

Earlier, the Ministry of Finance in its latest ‘Monthly Economic Update and Outlook’ report, projected Consumer Price Index (CPI)-based inflation in Pakistan for October at 27%-29%.

The finance ministry anticipated inflation will be lower contained compared to the elevated levels observed in the first quarter of FY2024.

Urban, rural inflation

The PBS said that CPI inflation Urban increased to 25.5% on year-on-year basis in October 2023 as compared to an increase of 29.7% in the previous month and 24.6% in October 2022.

On a month-on-month basis, it increased to 1.1% in October 2023 as compared to an increase of 1.7% in the previous month and an increase of 4.5% in October 2022.

CPI inflation Rural increased to 28.9% on year-on-year basis in October 2023 as compared to an increase of 33.9% in the previous month and 29.5% in October 2022.

On month-on-month basis, it increased to 1.1% in October 2023 as compared to an increase of 2.5% in the previous month and an increase of 5.0% in October 2022.

Market expectations

A number of brokerage houses had expected headline inflation to fall in October.

Last week, brokerage house JS Global had said it expected CPI-based inflation in October to hit 26.4%.

On a monthly basis, the slowdown was expected on the back of a drop in petroleum product prices, which likely trickled down to a dip in food prices – contrary to historical practice, it said.

Arif Habib Limited (AHL), another brokerage house, had also predicted a decline in inflation.

“We expect headline inflation to continue its downward trajectory in the upcoming months,” said the brokerage house, adding that the average MoM rate projected to be 1.03% until June 2024.

“These expectations are based on several factors, including reduced demand-side pressures, the stabilisation of global commodity prices, and the influence of a high base effect. This stands in contrast to the FY23, where the average headline inflation rate was higher at 29.2%,” 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 a 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.

The Pakistani and the IMF authorities are expected to begin crucial discussions on the first review of SBA from tomorrow (Thursday) amid government’s claim that all the targets have already been met.

As per the latest data, total liquid foreign reserves held by the country’s central bank stood at $7.5 billion.

The SBP Monetary Policy Committee (MPC) also kept the key policy rate unchanged at 22% in its latest announcement on Monday, in line with market expectations.

The central bank in its statement had projected inflation to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year.

The MPC acknowledged that the recent volatility in global oil prices as well as the increase in gas tariffs from November 2023 pose some risks to the FY24 outlook for inflation and the current account, but said that it also noted some offsetting factors.

“These include the targeted fiscal consolidation in Q1; improvement in market availability of key commodities; and the alignment of interbank and open market exchange rates,” it said.