KARACHI: Pakistan’s consumer price index (CPI) in May surged by 11.8% from a year earlier, marking the lowest inflation rate in 30 months, according to data released by the Pakistan Bureau of Statistics (PBS) on Monday. This figure is notably below the finance ministry’s projections and provides a glimmer of economic relief as the country grapples with persistent inflationary pressures.
The drop in inflation comes just a week before the central bank is set to review its key interest rate, which has been held at a historic high of 22% for seven consecutive policy meetings. Since May 2022, Pakistan has struggled with inflation rates above 20%, with a peak of 38% in May of the previous year amid stringent reforms tied to an International Monetary Fund (IMF) bailout program. However, inflation has shown a significant downward trend in recent months.
On a month-on-month basis, consumer prices fell by 3.2%, the largest decline in over two years. The finance ministry’s recent economic report had predicted inflation to remain between 13.5% and 14.5% in May, with expectations to ease further to between 12.5% and 13.5% by June 2024.
“The inflation outlook for May 2024 continues on a downward trajectory, attributed to elevated inflation levels in the previous year and improvements in the domestic supply chain of perishable items, staple food like wheat, and a reduction in transportation costs,” the finance ministry’s report stated. The lower-than-expected inflation readings were primarily driven by a sharper dip in food prices, noted Amreen Soorani, head of research at JS Global Capital.
Urban and Rural Price Changes
In urban areas, month-on-month price increases were observed in items such as potatoes (14.73%), meat (4.06%), beans (3.91%), eggs (1.60%), vegetable ghee (1.27%), cooking oil (1.26%), dental services (14.64%), doctor (MBBS) clinic fees (5.48%), transport services (3.35%), hospital services (2.73%), and textbooks (2.33%).
Conversely, significant monthly price decreases were recorded for tomatoes (51.23%), onions (51.15%), chicken (35.28%), wheat (22.17%), wheat flour (20.12%), fresh fruits (8.06%), liquified hydrocarbons (9.45%), electricity charges (4.50%), motor fuel (3.18%), and communication apparatus (2.35%).
In rural areas, price hikes were seen for potatoes (22.49%), meat (2.18%), milk powder (1.52%), beverages (1.37%), pulse gram (1.08%), education (2.76%), plastic products (2.07%), and marriage hall charges (2.01%).
On the other hand, rural areas experienced notable monthly price drops for tomatoes (57.91%), onions (47.97%), chicken (37.57%), wheat flour (18.80%), wheat (18.14%), fresh vegetables (17.96%), liquified hydrocarbons (7.84%), electricity charges (4.50%), and motor fuels (3.41%).
Year-on-Year Price Changes
Year-on-year, urban areas saw significant price increases for gas charges (318.74%), electricity charges (58.78%), transport services (32.28%), onions (86.64%), tomatoes (55.46%), condiments and spices (39.17%), beans (30.89%), and fish (29.64%). Meanwhile, price decreases were noted for wheat (29.06%), wheat flour (28.48%), chicken (22.30%), cooking oil (19.39%), fresh fruits (18.20%), vegetable ghee (16.51%), mustard oil (15.14%), eggs (8.50%), and liquified hydrocarbons (11.18%).
In rural areas, year-on-year price increases were recorded for onions (82.08%), tomatoes (73.95%), beans (38.06%), fresh vegetables (28.22%), fish (24.29%), electricity charges (58.78%), transport services (48.59%), water supply (31.65%), and education (24.19%). Decreases were noted for wheat flour (28.38%), wheat (25.82%), chicken (25.30%), fresh fruits (22.40%), and liquified hydrocarbons (3.99%).
Economic Implications
The significant easing of inflationary pressures, particularly the reduction in food prices, is a positive development for Pakistan’s economy. The upcoming central bank meeting will be closely watched for potential changes in the key interest rate, which could further influence the country’s economic trajectory. As Pakistan continues to navigate its economic challenges, the sustained reduction in inflation rates will be crucial for stabilizing the broader economic environment and alleviating the financial strain on consumers.