Inflation jumps to 3.46% in May

ISLAMABAD: Pakistan’s inflation unexpectedly rebounded in May, snapping a six-month streak of declines, as food prices surged and pushed the headline rate to 3.46pc — well above the government’s projections and marking a sharp jump from April’s 0.28 percent, the lowest in nearly 60 years.

Despite the rise, inflation stayed within single digits for the tenth straight month, reflecting a sharp slowdown from the record 37.97 percent seen in May 2023. The Finance Ministry had forecast May inflation between 1.5 percent and 2 percent, with a gradual uptick anticipated in June.

The reversal was driven by a resurgence in food and beverage costs, which jumped 3.07 percent in May from a 4.82 percent contraction a month earlier. Perishable food prices — though still deflationary — narrowed their drop to -9.2 percent from -26.7 percent.

Meanwhile, urban inflation stood at 3.5 percent, with rural at 3.39 percent, compared to 14.35 percent and 8.17 percent respectively in May 2024. Pakistan’s average inflation for July–May of FY25 stood at 4.6 percent, sharply down from 24.5 percent in the same period last year, according to data released Monday by the Pakistan Bureau of Statistics.

The inflation print exceeded market expectations and arrives just weeks after the State Bank of Pakistan slashed its benchmark interest rate by 100 basis points to 11 percent, the lowest since March 2022. While the move signals confidence in easing price pressures, the real interest rate remains at an eye-watering 7.54 percentage points—one of the highest globally.

Core inflation, which strips out volatile food and energy items, edged lower to 7.3 percent in May from 7.4 percent in April, and was well below the 12.3 percent recorded in May 2024. On a monthly basis, core prices slipped 0.4 percent.

Economists warn that persistently high real rates could crimp investment and stall recovery efforts in a country still reeling from fiscal constraints and high debt-servicing costs. The central bank has cut rates by 1,100 basis points since last year, down from a record 22 percent (June 2024) as inflation cooled rapidly.

Sectoral data showed mixed trends. Health service inflation eased to 12.75 percent from 14.15 percent a month earlier, and education inflation was stable at 10.9 percent. Meanwhile, clothing and footwear costs edged up to 9.66 percent, and recreation and culture inflation tumbled to 1.3 percent from 8.8 percent. Transportation fell -2.5 percent, a little increase than April -3.9 percent, while housing and utilities slid -2.5 percent after a -2.6 percent decrease in April.

The Wholesale Price Index (WPI) also showed a modest uptick, rising 0.36 percent in May after a 2.2 percent drop in April, and compared to 9.9 percent growth a year ago. Egg prices soared 24.4 percent in May, while chicken rose 8.6 percent. Sugar, milk powder, and gram pulse all posted notable increases. However, some staples saw relief: tomato prices plunged 20.8 percent, onions 12 percent, wheat 7.3 percent and sugar 4.1 percent.

In non-food group, cotton cloth rose 3.2 percent, motor vehicles 1.86 percent, and garments and tailoring services rose 1 percent. In contrast, electricity charges dropped 7.03 percent month-on-month, textbooks fell 8.6 percent, and liquified hydrocarbons declined 3.8 percent.