Inflation eases to 28.3pc in January

ISLAMABAD: Pakistan’s inflation rate experienced a decline for the first time in three months, registering at 28.34 percent year on year in January 2024, down from the previous month’s 29.66 percent, according to the Pakistan Bureau of Statistics (PBS).

However, on month on month basis, it marked an increase of 1.8 percent over the previous month. Despite this rise, inflation in Pakistan persists in the double-digit range, though it remains below the peak of 38 percent recorded in May 2023. In November 2023, the CPI was at 29.2 percent and 26.9 percent in October. Despite receiving IMF assistance since mid-2023, the country continues to grapple with economic challenges, attributed to factors such as a heightened energy crisis, a weaker rupee and elevated taxes, all contributing to inflationary pressures.

The State Bank of Pakistan, on January 29, 2023, opted to keep the benchmark policy rate at a record high of 22 percent for the fifth consecutive time to curb inflation. However, independent economists express skepticism, asserting that maintaining the policy rate may not effectively address the current nature of inflation, characterized as cost-push. They argue that the persistently high rate could potentially impede economic growth, as this mechanism is typically employed to counter demand-pull inflation, which is not the prevailing circumstance in this case.

Urban inflation was at 30.2 percent and rural at 25.7 percent. In the previous month, urban inflation was at 30.9 percent, and rural at 27.9 percent. As per the bureau’s statistics, for the first seven months of the fiscal year (July-Jan 2023-24), average inflation stood at 28.73 percent against 25.4 percent in the same period of the last fiscal.

The central bank adjusted its earlier inflation forecast for the fiscal year ending in June. The revised projection now stands at 23 percent-25 percent, up from the previous range of 20 percent to 22 percent. This adjustment underscores the ongoing economic uncertainties and challenges faced by the country. The Monetary Policy Committee (MPC) in its recent handout said, “The MPC expects average inflation to fall in the range of 23-25 percent in FY24 and continue to trend down noticeably in FY25.”

Likewise, core inflation, excluding food and energy costs, is also down to 17.8 percent in January 2024 against 18.2 percent in December 2023. January’s core inflation is an 11-month low reading, which might prompt the central bank to consider a downward revision of the policy rate.

In the latest CPI bulletin, price increases exhibited a deceleration in various sectors. Specifically, the rates of ascent for food were 25 percent in January 2024 compared to the previous 27.5 percent in December 2023, while restaurants and hotels experienced a slower pace at 28.3 percent, down from the previous 30.7 percent.

Transport costs rose at a more moderate rate of 26.2 percent, compared to the preceding 31.3 percent. Likewise, the sectors of recreation and culture saw a decrease in the rate of price growth, with figures showing 32.6 percent as opposed to the previous 38.5 percent. Health-related expenses also demonstrated a reduced acceleration, with a current rate of 21.5 percent compared to the earlier 23 percent.

Conversely, during the month under review, the housing and utilities sector experienced an uptick in prices, recording a growth of 38.7 percent compared to the previous 37.7 percent in December. Core inflation, a key factor in policy rate decisions, was recorded at 17.80 percent in January 2024 compared to the same month the previous year, marking the lowest rate since February 2023. The historical average from 2010 to 2024 was 8.44 percent, with a peak of 20 percent in May 2023 and a low of 3.40 percent in September 2015.

The wholesale price index (WPI), a measure of producer prices, arrived at 26.95 percent in January from 27.3 percent in December. The sensitive price indicator (SPI), which tracks the prices of essential items on a weekly basis, was recorded at 36.21 percent against 35.3 percent in December. The bulletin further reported that on a month-on-month basis, chicken (farm) price increased by 31.4pc, tomatoes 28.3pc, onions 27.87pc, eggs 17.2pc, fresh vegetables 8.3pc, gram pulse 7.6pc, fish 5.5pc, tea 4.93pc, dry fruits 4.14pc, fresh fruits 3.6pc, moong pulse 3.3pc, gur 3.01pc, sugar 2.89pc, besan 2.62pc and meat price increased by 1.87 percent. However, potato prices reduced by 32 percent, cooking oil by 1.34pc, vegetable ghee by 1.09pc and mustard oil prices fell by 0.18 percent.

Among non-food items, on an MoM basis, communication services were costlier by 15.68 percent, woolen readymade garments by 6.84pc, electricity charges by 6.45pc, liquified hydrocarbons 2.53pc, marriage hall charges 2.35pc, personal grooming services 2.27pc, solid fuel 1.94pc, garbage collection 1.63pc and furniture & furnishing 1.49pc. However, motor fuel charges were reduced by 3.48pc and construction input items by 0.36pc over the previous month.

On a year-on-year basis, tomatoes prices increased 154pc, cigarettes 98pc, fresh vegetables 80pc, condiments and spices 62pc, sugar 55pc, beans 52pc, gur 50pc, beverages 45pc, tea 43pc, eggs 42pc, mash pulse 42pc, wheat flour 41pc, potatoes 35pc, dry fruits 32pc, dessert preparation 29pc, milk powder 29pc, rice 29pc and masoor pulse costlier by 28pc.

Likewise, among the non-food items, on a yearly basis, gas charges were up by 520 percent, electricity charges 71pc, transport services 41pc, stationery 41pc, communication apparatus 40pc, textbooks 37pc, household equipment 36pc, washing soap/detergents/match box 35pc, marriage hall charges 34pc, newspapers 34pc, accommodation services 30pc, cotton cloth 29pc, furniture and furnishing 28pc, liquified hydrocarbons 28pc, drugs and medicines 27pc, plastic products 25pc and hospitals services were expensive by 24 percent over same month of last year.