By Staff Reporter
KARACHI: Inflation cooled more than expected in May, hitting a 30-month low and coming in under government forecasts, potentially giving the central bank room to ease policy in the upcoming review.
The Consumer Price Index (CPI) rose 11.8 percent from a year earlier, according to data released by the Pakistan Bureau of Statistics (PBS) on Monday. This marks the lowest inflation rate since November 2021 and is significantly below the finance ministry’s projection of 13.5 percent to 14.5 percent.
Month-on-month consumer prices fell 3.2 percent, the biggest such drop in more than two years.
The lowest reading comes a week before the central bank meets to review the key rate which has remained at a historic high of 22 percent for seven straight policy meetings. The central bank has previously raised the policy rate by 1500 basis points during FY22 and FY23 to combat inflationary pressures.
Pakistan has been beset by inflation above 20pc since May 2022. Last year in May, inflation jumped as high as 38 percent as the country navigated reforms as part of an International Monetary Fund (IMF) bailout programme. However, inflation has since slowed down.
“This came better than industry expectations of 13.7 percent,” said Muhammad Sohail, CEO of Topline Securities. “Tighter monetary and fiscal policies, record agricultural production in Pakistan and stable currency helped achieve this inflation level.”
On a month-on-month basis, inflation witnessed significant fall of 3.2bps, led by 783bps decline in food, followed by 163bps decline in transport and 133bps in housing, water and electricity segments.
Prices of food commodities, including onions, increased by 86.64 percent, tomatoes by 55.46 percent, condiments and spices by 39.17 percent while the price of wheat decreased by 29.06 percent, wheat flour by 28.48 percent, and chicken by 22.30 percent on an annual basis in May 2024.
Analysts hope the easing of the inflation rate in the country to the lowest level in about 30 months, will lead to the central bank easing the country’s monetary policy.
“Monthly decline in inflation rate is making policy easing all the more convincing case, as core inflation has also slowed to 12.3 percent in May 2024, which is turning the overall real interest rates significantly positive, especially on a forward-looking basis,” said Khurram Schehzad, CEO at Alpha Beta Core.
“However, sustained global tightening, risks to rupee/dollar, fiscal consolidation and structural/fiscal/tax reforms in budget FY25 and what the new IMF program holds, are some of the key factors for consideration of monetary policy decisions,” he added. “A balancing act is needed (inflation vs growth) from the monetary authorities.”
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