Pakistan’s Inflation Drops to Single-Digit for the First Time in 3 Years

Pakistan’s headline inflation rate fell to 9.6% year-on-year in August 2024, marking a significant decrease from July’s 11.1% and returning to single-digit territory for the first time in three years, according to data from the Pakistan Bureau of Statistics (PBS).

The last time inflation was this low was in October 2021, when it stood at 9.2%.

On a month-on-month basis, the Consumer Price Index (CPI) rose by 0.4% in August 2024, a slower increase compared to the 2.1% rise in July and the 1.7% increase in August 2023. This reading aligns with the Ministry of Finance’s expectations, which had projected inflation to range between 9.5% and 10.5% for August in its monthly economic outlook.

The Ministry of Finance attributed the decline to stability in economic indicators and anticipates further decreases, predicting inflation to fall to between 9% and 10% in September 2024.

This comes after the State Bank of Pakistan (SBP) reduced the key policy rate by 100 basis points to 19.5% in July, citing potential risks to the inflation outlook from fiscal slippages and energy price adjustments.

Inflation has been a persistent challenge for Pakistan’s economy, peaking at a record high of 38% in May of the previous year. However, it has been on a downward trend since then.

Urban areas saw a CPI inflation rate of 11.7% year-on-year, down from 13.2% in the previous month, while rural areas saw a rate of 6.7%, a decrease from 8.1% in July. On a month-on-month basis, the national CPI increased by 0.4%, with urban areas seeing a 0.3% rise and rural areas a 0.6% increase.

The Sensitive Price Indicator (SPI) also showed a year-on-year increase of 10.8% in August 2024, down from 15.7% in July, while the Wholesale Price Index (WPI) rose by 6.3% year-on-year, compared to 10.4% in the previous month.

Core inflation, which excludes food and energy prices, also saw a decline. The non-food non-energy urban core inflation rate decreased to 10.2% year-on-year, while the rural rate fell to 14.4%.

The report attributes the month-on-month changes to fluctuations in the prices of various commodities. Notably, the prices of onions, chicken, and eggs saw significant increases, while fresh fruits and tomatoes experienced price drops. Non-food items such as motor vehicle tax and stationery also saw price hikes, whereas electricity charges and motor fuel prices decreased.

This decline in inflation rates is a promising sign for Pakistan’s economy, suggesting that the government’s efforts to stabilize prices are beginning to take effect. However, the report also indicates that certain sectors, such as housing and utilities, continue to experience high inflation rates, necessitating ongoing monitoring and policy adjustments.