Finance ministry sees inflation at 22.5-23.5% in March

Pakistan’s headline inflation is expected to hover around 22.5-23.5% in March 2024, the Finance Division said on Friday, as it sees inflation outlook “moderate on account of incumbent government’s strong resolve of curbing inflationary pressure by instituting enhanced administrative measures”.

In its Monthly Economic Update and Outlook, the ministry said inflation in March is being seen at a moderate level despite the upward revision of petrol prices and the influence of Ramadan.

It cited that the government had announced a relief package for Ramadan with increased allocation from earlier Rs7.5 billion to Rs12.5 billion.

Headline inflation projected to stand at around 20% in March

“This will provide relief to the masses and cushion the impact of heightened demand during the religious festival. Furthermore, the phenomenon of the high base effect is also contributing to the moderation of inflationary pressures,” the outlook report said.

Additionally, the report continued, the global context played a role in shaping inflation dynamics.

“The Food and Agriculture Organization’s food price index, a key indicator tracking the prices of globally traded food commodities, registered a decrease of 0.7 percent in February 2024 compared to the revised January level.

“The YoY index was down by 10.5 percent from its corresponding value one year ago. This decrease, primarily driven by decline in the price indices for cereals and vegetable oils, offset increase in price for sugar, meat, and dairy products,” it said.

There are expectations of a gradual easing further to 21-22% in April 2024: Monthly Economic Update and Outlook

In February, the country’s headline inflation clocked in at 23.1% on a year-on-year basis, as per Pakistan Bureau of Statistics (PBS) data, which was much lower than the reading in January when it had stood at 28.3%.

During Jul-Feb FY24, monthly inflation stood at 28.0% against 26.2% in the same period last year.

According to the finance ministry, major drivers of inflation include alcoholic beverages & tobacco, housing, water, electricity, gas & fuel, furnishing & household equipment maintenance, clothing & footwear, perishable food items, non-perishable food items and transport.

To reduce the inflationary impact, the federal government provided the Ramadan Relief Package of Rs12.5 billion, targeting low-income groups with food subsidies through various measures, it said.

In the report, Finance Division maintained that Pakistan’s economic and financial position “continues to improve with each passing month of the current fiscal year, attributed to prudent policy management and the resumption of inflows from multilateral and bilateral partners”.

Earlier this month, Pakistani authorities reached a staff-level agreement with the International Monetary Fund (IMF) on the second and final review of the $3 billion Stand-By Arrangement (SBA).

The agreement is subject to approval by the IMF’s Executive Board, upon which the remaining access under the SBA, $1.1 billion, will become available for Pakistan.

“The ongoing efforts in policy and reform are easing out pressures on the gross financing needs, which has been intensified by increased external and domestic financing demands and an uncertain external environment.

These positive developments have led to a sustained economic recovery and an uplift in the country’s overall economic confidence,“ the monthly economic update and outlook report said.