Pakistan’s headline inflation reading clocks in at 28.3% in January

Pakistan’s headline inflation clocked in at 28.3% on a year-on-year basis in January, the Pakistan Bureau of Statistics (PBS) said on Thursday, marginally lower than the reading in December when it stood at 29.7%. On a month-on-month basis, the reading was up 1.8%.

This takes July-January average inflation to 28.73% compared to 25.40% in the same period of the previous year.

The inflation reading is in line with government’s expectations.

On Wednesday, the Ministry of Finance, in its ‘Monthly Economic Update and Outlook’ report, projected CPI-based inflation in Pakistan to remain high at 27.5-28.5% in January 2024.

“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 a 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.

Brokerage house JS Global, in a report released last week, had said the inflation is expected to remain elevated on account of high food inflation.

“We preview CPI for Jan-2024, where we expect another month of higher food inflation and quarterly house rent uptick to keep headline numbers elevated.

“With a MoM (month-on-month) uptick of 1.8% expected in the food segment, we expect headline CPI to clock in at 1.5% MoM, taking Jan-2024 YoY CPI estimates to 27.9%,” it said.

“We anticipate CPI inflation in coming months to remain on lower side amid decline in local fuel prices and high base effect of last year,” it said in a note.

Urban, rural inflation

The PBS said CPI inflation urban increased to 30.2% on year-on-year basis in January 2024 as compared to an increase of 30.9% in the previous month and 24.4% in January 2023.

On a month-on-month basis, it increased to o 1.8% in January 2024 as compared to an increase of 0.7% in the previous month and an increase of 2.4% in January 2023.

CPI inflation rural stood at 25.7% on year-on-year basis in January 2024 as compared to an increase of 27.9% in the previous month and 32.3% in January 2023.

On month-on-month basis, increased to 1.9% in January 2024 as compared to an increase of 1.0% in the previous month and an increase of 3.6% in January 2023.

SBP expectations

Earlier, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) maintained status quo and kept the key policy rate at 22%, it was announced on Monday.

“The committee noted that the external account (position) has become better,” said SBP Governor Jameel Ahmad.

The MPC noted that both food and core inflation are moderating for the past few months.

“This trend reflects the positive impact of tight monetary policy stance duly supported by ongoing fiscal consolidation, lower global commodity prices, and improved domestic crop output and supplies.

“However, the positive impact of these developments is being diluted by sizable adjustments in administered energy prices, especially from November 2023 onwards,” said the MPC in its statement.

The committee noted that the large adjustments have significantly impacted the inflation outturns and its near-term outlook.

“Incorporating the inflation in H1-FY24, expected significant decline in the second half, and the evolving risks, the MPC expects average inflation to fall in the range of 23 – 25% in FY24 and continue to trend down noticeably in FY25,” it said.