Inflation drops to 22-month low in March

ISLAMABAD: The inflation rate has An undated image of consumers buying fresh vegetables from a local market. — AFP/Filedeclined for the third consecutive month, settling at 20.68 percent year-on-year in March 2024, down from the previous month’s 23.1 percent, according to the Pakistan Bureau of Statistics (PBS).

This reading for March is the lowest since May 2023. Historically, Pakistan’s headline inflation rate measured by the consumer price index (CPI) has averaged 8.42 percent from 1957 to 2024. It reached its highest level of 37.97 percent in May 2023 and its lowest point of -10.32 percent in February 1959.

Inflationary deceleration stems predominantly from moderated price increments in key sectors including food and non-alcoholic beverages which arrived at 17.2 percent against 18.2 percent in the previous month, clothing and footwear (16.1pc compared to 20.2pc), transportation (11.2pc versus 15pc), and restaurants and hotels (18.9pc as opposed to 22.4pc).

Likewise, homecare maintenance cost was reduced to 20.56 percent against 25.6 percent, communication to 14.6 percent from 17.8 percent, and leisure & cultural affairs expenses to 24.7 percent from 28.4 percent in the previous month. Education expenses also reduced to 12.3 percent from 12.95 percent in February 2024.

Conversely, housing and utilities witnessed a marginal uptick and were recorded at 36.6 percent compared to 36.1 percent in the previous month. Health expenses also rose to 19.63pc from 19.3pc last month.

Apart from the fall in general inflation, core inflation (excluding food and energy costs) is also down to 12.8 percent in March 2024 against 15.5 percent in February 2024. March’s core inflation is a 10-month low reading.

The fall in inflation, especially of core inflation, makes a strong case for the central bank to downward revise its discount rate.

On March 18, the State Bank’s Monetary Policy Committee (MPC) opted to keep the benchmark policy rate at a record high of 22 percent for the sixth consecutive time to curb inflation.

Historically, the core inflation rate in Pakistan has averaged 8.51 percent from 2010 to 2024, hitting an all-time high of 20 percent in May 2023 and a record low of 3.40 percent in September 2015.

The CPI inflation on month on month basis, however, marked an increase of 1.7 percent during the month under review 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.

Notably, the CPI inflation in December 2023 was at 29.7 percent, in January 2024 it slashed to 28.3 percent, in February it further fell to 23.1 percent.

Despite receiving IMF assistance since mid-2023, Pakistan continues to face economic challenges, including a heightened energy crisis, a weaker rupee, and increased taxes, all contributing to inflationary pressures.

Some independent economists say that the SBP policy of ‘quantitative tightening’ only harms GDP growth and does not effectively serve the objective of taming inflation. They argue that inflation is cost-push, while policy tightening is the medicine for countering demand-pull inflation.

Urban inflation was at 21.9 percent and rural at 18.97 percent. In the previous month, urban inflation was at 24.87 percent, and rural at 20.54 percent.

As per the bureau’s statistics, for the first nine months of the fiscal year (July-March 2023-24), average inflation stood at 27 percent against 27.26 percent in the same period of the last fiscal.

The wholesale price index (WPI), a measure of producer prices, arrived at 14.78 percent in March from 18.66 percent in February. The sensitive price indicator (SPI), which tracks the prices of essential items on a weekly basis, was recorded at 25.9 percent against 30.37 percent in February.

The prices of various commodities experienced significant fluctuations on a month-on-month basis, according to recent data.

Tomatoes saw a notable increase of 52.14 percent, followed by onions at 28.04pc and potatoes at 23.65pc. Similarly, fresh fruits rose by 21.90 percent, while fresh vegetables increased by 12.82 percent. Meat prices climbed by 3.99 percent, with pulse moong and gram whole experiencing smaller upticks of 1.95pc and 1.92pc, respectively. Conversely, some items witnessed price decreases, including chicken at 5.54 percent, cooking oil at 3.42pc, and eggs at 2.78pc. Wheat, wheat flour, vegetable ghee, mustard oil, bakery and confectionery items, and dry fruits also experienced declines, albeit smaller in magnitude.

In the non-food sector, notable fluctuations in prices were observed in various categories. Electricity charges surged by 5.11 percent, while tailoring services saw a rise of 3.13pc. Additionally, prices of liquefied hydrocarbons increased by 2.90 percent, with readymade garments and motor fuel following suit at 2.22pc and 1.70pc, respectively.

Personal grooming services and personal effects also experienced upticks of 1.36pc and 1.30pc, while drugs and medicines rose by 1.19pc. Conversely, transport services witnessed a significant decrease of 6.43pc.

On a year-on-year basis, significant price hikes were seen in various food items, with tomatoes leading at a staggering 188.4pc increase, followed by onions at 84.06pc and fresh vegetables at 55.31pc. Condiments and spices rose by 49.08pc, while gur increased by 44pc, and sugar by 37.3pc.

Likewise, potatoes prices surged by 36.03pc, followed closely by beans at 34.52pc and wheat flour at 32.68pc. Additionally, beverages rose by 27.69pc, while pulse mash increased by 27pc.

Fish saw a hike of 25pc, while dry fruits, sweetmeat, meat, and pulse masoor all experienced notable increases of 24.48pc, 23pc, 22.4pc, and 22pc, respectively. Conversely, cooking oil prices dropped by 22.6pc, with vegetable ghee down by 20pc, mustard oil by 16pc, and fresh fruits by 4.15pc.

Gas charges skyrocketed by 319pc over the past year, while electricity charges surged by 73pc. Additionally, newspapers and textbooks saw notable increases of 34pc and 33.7pc, respectively, with accommodation services rising by 30.6pc.

Prices of washing soap, detergents, and matchboxes increased by 24.17pc, while woolen readymade garments, furniture and furnishing, transport services, and stationery all experienced hikes ranging from 21.36pc to 23.44pc. Conversely, liquefied hydrocarbons decreased by 1.6 pc.