Pakistan’s year-on-year Consumer Price Index (CPI) inflation rate has surged to 31.4%, rising from 27.4% in August, as indicated by data from the Pakistan Bureau of Statistics (PBS). This increase is primarily attributed to soaring energy costs.
This inflation uptick comes after four months of relative stability, following the government’s decision to raise fuel prices in alignment with conditions set by the International Monetary Fund (IMF) for an ongoing $3 billion bailout program. Pakistan is navigating a challenging path to economic recovery under a caretaker government after the IMF-approved loan program in July averted a sovereign debt default but introduced conditions that complicated efforts to control inflation.
On a month-on-month basis, inflation in September rose by 2%, compared to a 1.7% increase in August. During the first quarter of the current fiscal year, average inflation stood at 29%, with a quarterly average of 29.04% for 1QFY24 compared to 25.11% in 1QFY23.
The CPI inflation in urban areas increased to 29.7% year-on-year in September 2023, compared to 25.0% in the previous month and 21.2% in September 2022. On a month-on-month basis, it rose to 1.7% in September 2023, up from 1.6% in the previous month and a decrease of 2.1% in September 2022.
In rural areas, CPI inflation increased to 33.9% year-on-year in September 2023, compared to 30.9% in the previous month and 26.1% in September 2022. On a month-on-month basis, it increased to 2.5% in September 2023, up from 1.9% in the previous month and 0.2% in September 2022.
Market expectations were largely in line with these figures. While a lower base set in September 2022, mainly due to a one-time power tariff adjustment, influenced the September 2023 CPI reading, some analysts projected it at 30.6%.
Pakistan’s Inflation Outlook
Looking ahead, risks to overall inflation include sustained pressure on food and energy prices, along with an imminent adjustment in gas tariffs, according to analysts. The Ministry of Finance anticipates inflation remaining high in the near term, around 29-31%, due to energy tariff adjustments and increased fuel prices. However, it is expected to ease, particularly in the second half of the current fiscal year.
Pakistan recently reduced petrol and diesel prices after consecutive hikes, citing international petroleum product prices and an improved exchange rate as factors.
Inflation has remained in double digits since November 2021, despite the country targeting 21% inflation for the current fiscal year, averaging 29% during the first quarter. This has led to sporadic protests amid worsening economic conditions and rising political tensions ahead of a national election scheduled for November.
Analysts believe that a gradual decrease will follow the recent inflation peak. Fahad Rauf, head of research at Ismail Iqbal Securities, expects inflation to ease to around 26-27% in the next few months, with higher inflation statistics unlikely to impact monetary policy.
