Finance ministry sees inflation at 27.5-28.5% in January

Pakistan’s headline inflation is expected to remain high at 27.5-28.5% in January 2024, the Finance Division said in its Monthly Economic Update and Outlook released on Wednesday.

“The elevated prices of perishables and vegetables, coupled with increased utility costs (electricity and gas), have contributed to the inflationary pressure,” the outlook read.

According to the monthly report, there has been surge in onion export orders following the Indian ban that strained local supply and increased domestic prices. Specific commodities, such as tomatoes, witnessed price hikes due to supply disruptions caused by severe weather, intensifying the demand-supply gap. Similarly, chicken prices rose due to reduced supply, particularly from controlled sheds experiencing higher input costs.

Ministry of Finance projects inflation at 27.5-28.5% for December

It is expected that economic activities will further strengthen during second half of FY2024 - contingent on the continuation of sound and prudent economic policies: Monthly Economic Update and Outlook

“However, the government has taken measures to reduce onion export by increasing the minimum export price and also lifted the ban on soyabean import which would ease the supply situation of perishables and chicken,” it said.

Moreover, a decline in fuel cost in January offered a “promising counterbalance”, potentially mitigating the overall impact on consumers and production sectors, the report added.

“Keeping in view the above coupled with the high base effect, inflation is anticipated to remain around 27.5-28.5 percent in January 2024 and further ease out to 26.5-27.5 percent in February 2024.”

It may be noted that the monthly inflation clocked in at 29.7% on a year-on-year basis in December 2023, marginally higher than the reading in November when it stood at 29.29%. On a month-on-month basis, the reading was up 0.8%. The finance ministry had projected inflation to stand between 27.5-28.5% for December.

In first half of FY2024, according to the Finance Division, macroeconomic conditions gradually improved, leading to a revival in overall economic activity compared to the challenging FY2023.

“This persistent uptick in economic indicators has resulted in improved GDP growth of 2.13% in the first quarter of FY2024, with expectations for continued growth in the second quarter.”

In its latest Monetary Policy Committee meeting, the SBP also revised its inflation projection for fiscal year 2024, taking it from 20-22% to 23-25%.

Meanwhile, Pakistan has recently received a tranche equivalent to $705.6 million, following the successful completion of the first review by the Executive Board of IMF under Stand by Arrangements (SBA) – which is providing “market confidence and exchange rate stability”.

“It is expected that economic activities will further strengthen during second half of FY2024 - contingent on the continuation of sound and prudent economic policies which will gear toward achieving the set growth target for the current fiscal year,” the outlook report concluded.