Pakistan’s headline inflation reading slows further to 20.7% in March

Pakistan’s headline inflation clocked in at 20.7% on a year-on-year basis in March, the Pakistan Bureau of Statistics (PBS) said on Monday, lower than the reading in February when it stood at 23.1%. On a month-on-month basis, the reading was up 1.7%.

This is the lowest inflation reading since May 2022 when it stood at 13.8%, shared JS Global. It is also the first time in over three years that the CPI-based inflation figure has gone below the key policy rate, which currently stands at 22%.

The latest CPI figure takes July-March average inflation to 27.22% compared to 27.19% in the same period of the previous year.

The inflation reading is lower than government’s expectations, and adds credence to the wider impression that the key interest rate will now start to reduce.

On Friday, the Ministry of Finance, in its ‘Monthly Economic Update and Outlook’ report, projected CPI-based inflation in Pakistan to hover around 22.5-23.5% in March 2024.

In its monthly report, 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.

“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.

Brokerage house Arif Habib Limited (AHL), in a report released last week, had said inflation is expected to decline further and may clock in at around 20% level on a year-on-year (YoY) basis in March, lower than 23.1% recorded in February.

“The projected YoY headline inflation rate for March 2024 is expected to be 20.2%, reflecting a decline from the previous month, February 2024, which reported a YoY inflation rate of 23.1%,” said AHL in a report on Thursday.

Meanwhile, IGI Securities, another brokerage house, estimated national CPI to clock in at 20.3% year-on-year growth.

“On a monthly scale, March 2024 is estimated to show a +1.4% month-on-month growth compared to +0.0% month-on-month in February 24,” it noted.

The government raised the price of petrol in its late-night announcement Sunday, but experts believe inflation is likely to clock in below 20% in the coming months due to the high-base effect.

Urban, rural inflation

The PBS said CPI inflation urban increased to 21.9% on year-on-year basis in March 2024 as compared to an increase of 24.9% in the previous month and 33.0% in March 2023.

On a month-on-month basis, it increased to 1.4% in March 2024 as compared to an increase of 0.2% in the previous month and an increase of 3.9% in March 2023.

CPI inflation rural stood at 19.0% on year-on-year basis in March 2024 as compared to an increase of 20.5% in the previous month and 38.9% in March 2023.

On month-on-month basis, increased to 2.1% in March 2024 as compared to a decrease of 0.3% in the previous month and an increase of 3.5% in March 2023.

SBP expectations

In its last meeting, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) maintained the key policy rate at 22%, its sixth successive decision to maintain the status quo.

“In approaching the decision, the MPC noted that inflation, in line with earlier expectations, has begun to decline noticeably from H2-FY24,” read the statement.

“It, however, observed that despite the sharp deceleration in February, the level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations. This warrants a cautious approach and requires continuity of the current monetary stance to bring inflation down to the target range of 5–7% by September 2025.”

The SBP’s MPC is currently scheduled to meet on April 29.