Pakistan’s headline inflation clocked in at 29.7% on a year-on-year basis in December, the Pakistan Bureau of Statistics (PBS) said on Monday, 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%.

This takes July-December average inflation to 28.79% compared to 25.02% in the same period of the previous year.

The inflation reading is higher than the government’s expectations. Last week, the Ministry of Finance, in its ‘Monthly Economic Update and Outlook’ report, projected CPI-based inflation in Pakistan for December at 27.5-28.5%.

The ministry said the outlook for the remaining months of FY2024 is expected to be at a moderate level despite the upward revision of administered prices (gas prices).

“This is on account of a stable exchange rate, contained aggregate demand, better supply position, moderation in the international commodity prices, and favourable base effect,” the report had said.

Experts attributed the 0.8% increase in inflation to increase in housing and utility index, which was up 3.56%, on account of increase in electricity charges.

Brokerage house Topline Securities also said the reading came higher than industry expectations due to an increase in electricity charges.

“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 30.9% on year-on-year basis in December 2023 as compared to an increase of 30.4% in the previous month and 21.6% in December 2022.

On a month-on-month basis, it increased to 0.7% in December 2023 as compared to an increase of 4.3% in the previous month and an increase of 0.3% in December 2022.

CPI inflation Rural stood at 27.9% on year-on-year basis in December 2023 as compared to an increase of 27.5% in the previous month and 28.8% in December 2022.

On month-on-month basis, increased to 1.0% in December 2023 as compared to an increase of 0.4% in the previous month and an increase of 0.7% in December 2022.

SBP expectations

Last month, the Monetary Policy Committee (MPC) of the SBP, in line with expectations, had kept the key policy rate unchanged at 22%.

“The decision does take into account the impact of the recent hike in gas prices on inflation in November, which was relatively higher than the MPC’s earlier expectation. The Committee viewed that this may have implications for the inflation outlook, albeit in the presence of some offsetting developments, particularly the recent decrease in international oil prices and improved availability of agriculture produce.

“Further, the Committee assessed that the real interest rate continues to be positive on a 12-month forward looking basis and inflation is expected to remain on a downward path,” it said in a statement.

MPC said that it expected headline inflation to decline significantly in the second half of FY24 due to contained aggregate demand, easing supply constraints, moderation in international commodity prices and favorable base effect

The SBP projected an average inflation for FY24 in the range of 20-22%.