Pakistan’s Consumer Price Index (CPI)-based inflation witnessed a significant decline, clocking in at 29.4% on a year-on-year basis in June 2023 compared to an increase of 38% in the previous month and 21.3% in June 2022. On a month-on-month basis, it decreased by 0.3%, showed data released by the Pakistan Bureau of Statistics (PBS) on Monday.
“This takes FY23 average inflation to 29.18% compared to 12.15% in FY22,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL), said in a note.
This is the lowest CPI reading since January 2023.
As per PBS data, the food group, which commands a significant weight of 34.58% in the inflation reading, remained the major driver behind the decrease. It decreased to 261.78 in June 2023 as compared to 264.45 in May 2023, a fall of over 1%.
Experts attributed the decline to the stabilisation of the US dollar and decrease in commodity prices.
“We projected CPI inflation to be around 29.9%, but the decline was expected,” Fahad Rauf, Head of Research at Ismail Iqbal Securities, told Business Recorder.
“Last year in June, a number of adjustments were made to appease the International Monetary Fund (IMF) including an increase in electricity and gas tariffs, thus there is a high base effect this month.
“On a month-on-month, inflation dropped by 0.3% as the US dollar has stabilised and oil prices have declined. Further inflationary pressure is not building up,” he added.
“Inflation is expected to fall further after the IMF programme as the US dollar is expected to stabilise, which would contain inflation. Secondly, international commodity prices have also softened up.
“Overall, we would see a lowering tendency in the coming months,” said Rauf.
Rural and urban inflation
CPI inflation in urban areas clocked in at 27.3% on a year-on-year basis in June 2023 as compared to an increase of 35.1% in the previous month and 19.8% in June 2022.
On a month-on-month basis, it increased to 0.1% in June 2023 as compared to an increase of 1.5% in the previous month and an increase of 6.2% in June 2022.
Meanwhile, CPI inflation in rural areas increased to 32.4% on year-on-year basis in June 2023 as compared to an increase of 42.2% in the previous month and 23.6% in June 2022.
On a month-on-month basis, it decreased to 0.8% in June 2023 as compared to an increase of 1.7% in the previous month and an increase of 6.6% in June 2022.
Economic situation
High inflation is just one of the issues currently putting Pakistan’s economy in distress.
The South Asian country has been faced with a barrage of woes with a perceived default risk and a downgrade by international rating agencies reflecting the state of the economy that has also had to bear major political turmoil and frequent change in key leadership.
However, in a major positive development, the country was able to secure a staff-level agreement on a new nine-month, $3-billion stand-by arrangement, which was announced on Friday.
The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July.
The development is being seen as a major breakthrough for the government that was scrambling to secure the ninth review of its previous bailout programme and running from pillar to post to secure dollar inflows amid fast-depleting foreign exchange reserves.
Meanwhile, the SBP Monetary Policy Committee (MPC) raised the key policy rate by 100 basis points (bps) to 22% after convening an emergency meeting last week.
The central bank in a statement back then said that upward revisions in taxes, duties and PDL rate in FY24 budget and withdrawal of import restrictions “have slightly deteriorated inflation outlook and which could potentially increase pressure on the already stressed external account”.