Weekly inflation drops 0.21pc

KARACHI: Pakistan’s weekly inflation, measured by the Sensitive Price Indicator (SPI), declined by 0.21 per cent for the week ending February 6, driven by falling prices of essential food items, according to data released by the Pakistan Bureau of Statistics (PBS) on Friday.

Out of the 51 essential items tracked, prices of 13 items (25.49 per cent) increased, 16 items (31.37 per cent) decreased, while 22 items (43.14 per cent) remained unchanged.

The biggest price drops were recorded in tomatoes (-11.42 per cent), potatoes (-5.99 per cent), onions (-4.38 per cent), and chicken (-3.95 per cent). Other key items, including pulse gram, liquefied petroleum gas (LPG) and mustard oil, also saw price reductions.

Despite the overall decline, certain commodities posted price increases. Bananas rose by 3.25 per cent, diesel by 2.67 per cent, and sugar by 1.78 per cent. Petrol and cigarettes also saw marginal upticks.

On a year-on-year (YoY) basis, inflation edged up 1.02 per cent, with sharp price hikes in essentials such as ladies’ sandals (+75.09 per cent), pulse moong (+31.08 per cent), powdered milk (+25.8 per cent) and beef (+22.35 per cent). Meanwhile, prices of onions (-54.79 per cent), tomatoes (-42.99 per cent) and wheat flour (-36.76 per cent) saw notable declines.

Inflation has been on a downward trend in Pakistan. According to data released by the PBS on Monday, consumer price index (CPI) inflation eased significantly to 2.4 per cent year-on-year in January 2025, down from 4.1 per cent in December and a staggering 28.3 per cent recorded in January 2024.

Fitch Ratings, in a note on Thursday, also commended Pakistan, saying that the country continues to “make headway in restoring economic stability and rebuilding external buffers”. The State Bank of Pakistan’s (SBP) decision to cut the policy rate to 12 per cent on January 27 underscored recent progress in taming inflation, Fitch noted.

According to brokerage firm Topline Securities, inflation during 7MFY25 has averaged at 6.5 per cent compared to 28.73 per cent in 7MFY24. It further adds that this is the “lowest reading in 111 months (over nine years)”.

Per Dr Khaqan Najeeb, former adviser to the Ministry of Finance, moderate domestic demand conditions and a slowing economy has contributed to an easing of inflation. The current policy rate of 12 per cent -- after even a 10 percentage points decline -- has made the real rate significantly positive in the country, giving room to move to a less restrictive stance on the monetary policy to support economic activity. Moving forward, he added, to maintain a low inflationary environment, work on structural and fiscal reforms along with improving the productive capacity of the economy remain crucial.

Per financial expert Karim Punjani, the current inflation is primarily influenced by the base effect rather than representing a normalised rate. Inflation is expected to average around 6-7 per cent; however, demand pressures and exchange rate movements this year will establish a new baseline.

Commenting on how a dip in inflation will impact the SBP’s decision to cut interest rates, he said, “overall, I believe the [SBP] will take a cautious approach, considering global economic trends, tariff impacts (including potential ‘Trumpflation’), and domestic demand pressures. Looking ahead, assuming a real interest rate of 2-2.5 per cent with an average inflation of 9.0 per cent, the SBP may opt for a gradual 200 basis points (bps) rate cut over the year.