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Friday December 03, 2021

Inflation likely to remain high in Pakistan for next six months: EIU

EIU predicts rupee will continue on a depreciatory path despite short-term relief due to widening trade deficit, inflationary pressures

By Web Desk
November 06, 2021
— AFP/File
— AFP/File

Inflation is likely to remain high in Pakistan for the next six months and the rupee is expected to continue on a  depreciatory path despite a support package from Saudi Arabia, the Economic Intelligence Unit (EIU)  said.

The research and analysis division's assessment comes after the Pakistan Bureau of Statistics (PBS) reported that inflation clocked in at 9.2% in October 2021.

It said: “Strengthening inflationary headwinds are being driven largely by rapid import growth, exacerbated by a surge in global commodity prices, as the economy recovers from the disruption caused by the COVID-19 pandemic.” 

“We continue to expect that upward pressure on consumer prices will persist during the first half of 2022, as the global economic recovery is likely to keep commodity prices elevated,” the EIU said, adding that the rupee will continue on a depreciatory path despite short-term relief in the form of a financial assistance package from Saudi Arabia due to Pakistan's persistently wide trade deficit and strong inflationary pressures.

The EIU said that the pass-through effect of higher oil prices is reflected in rising inflation in power and transportation.

“This was reflected in the transport category, which jumped by 14.4% year on year. Similarly, prices for utilities (comprising electricity, water and gas) also experienced double-digit growth, rising by 12%.”

The PBS data is in line with EIU’s view that consumer prices will remain elevated over the current and coming quarters (till the end of March 2022).

“They also support our estimate that the headline rate of inflation is likely to remain above 9% in the fourth quarter of 2021, and that consumer prices will increase by an average of 9.2% for the year as a whole (slightly slower than the 9.5% rate recorded in 2020).”

The EIU used its assessment to predict that the State Bank of Pakistan (SBP) will raise rates again at its next monetary policy meeting on November 26.

“We maintain our forecast of an elevated inflation rate of 9.2% in 2021, eliciting further policy tightening from the SBP," it said.