Rate Cut
ISLAMABAD: Pakistan’s inflation appears to be cooling significantly, with the Sensitive Price Index (SPI) registering a modest year-on-year increase of just 0.52% for the week ending January 23.
This development has sparked hopes for a possible reduction in the policy rate by the State Bank of Pakistan (SBP) in the upcoming week, as reported on Saturday.
This figure marks a significant decline from the previous week’s 1.16% rise, marking the fourth consecutive week of easing inflation, which has dropped from 5.08% at the end of December 2024.
The recent dip in the SPI, which tracks the prices of essential goods, has led economists to forecast a notable decrease in January’s Consumer Price Index (CPI), which stood at 4.1% in December. It is now expected that CPI could fall below 3% in January 2025, potentially dropping as low as 2.5%.
The continued decline in SPI, which measures short-term inflation for 51 essential items, has prompted analysts to anticipate a potential policy rate cut of 1.5 percentage points when the SBP’s Monetary Policy Committee meets on January 27.
This is a stark contrast to the inflation peak of 48.35% recorded in May 2023, a period marked by severe economic stress. The latest figures, released by the Pakistan Bureau of Statistics (PBS), also highlight a 0.77% week-on-week drop in SPI, signaling a mixed trend in prices across 17 cities.
Notably, the 0.52% year-on-year SPI is the lowest inflation rate seen since October 2014. Key contributors to this decline include substantial price drops in tomatoes, which fell by 33%, and eggs, which dropped by 10.2%.
Onions and potatoes also experienced price reductions of 9.8% and 7.4%, respectively. Other goods, such as liquefied petroleum gas (LPG), gram pulses, and chicken, also saw price reductions.
However, not all items saw price declines. Sugar and bananas recorded modest increases of 2.93% and 2.7%, respectively, while other staples like garlic, basmati rice, vegetable ghee, and pulses saw slight upticks of less than 1%.
Despite the overall decline in inflation, some essential goods have experienced considerable price hikes over the past year. For instance, ladies’ sandals surged by 75%, while the prices of potatoes and gram pulses rose by 44.3% and 38%, respectively. Similarly, moong pulse prices increased by 33%, powdered milk by 26%, and beef by 22.4%.
On the positive side, some items, including onions, eggs, tomatoes, and wheat flour, saw significant price reductions, providing some relief to consumers. Onions saw a 52% price drop, eggs fell by 39%, and tomatoes decreased by 37%, while wheat flour prices dropped by 36% over the past year.
Additionally, chilis powder prices fell by 20%, and electricity charges for the lowest consumption slab dropped by 18.1%.
This easing inflation could provide much-needed relief to households and businesses, with lower prices for essential goods potentially reducing the financial burden on consumers.
A policy rate cut could also stimulate economic activity. However, economists stress the importance of structural reforms and improved supply chain management to ensure that the country can achieve sustainable price stability in the long term.
