Pakistan’s headline inflation drops to lowest level since November 2021

ISLAMABAD: Pakistan’s headline inflation rate fell to 11.8 per cent year-on-year in May, a significant decrease from April’s 17.3 per cent, according to the Pakistan Bureau of Statistics (PBS). On a month-on-month basis, the inflation rate dropped by 3.2 per cent.

“This is the lowest inflation reading in the past 29 months, since November 2021,” noted Mohammed Sohail, CEO of Topline Securities. “Tighter monetary and fiscal policies, record agricultural production, and a stable currency have all contributed to this achievement,” he added.

Sohail also indicated that the State Bank of Pakistan (SBP) might soon consider cutting the interest rate, given that real rates are currently at a record high of over 1,000 basis points.

The latest Consumer Price Index (CPI) figures show an average inflation rate of 24.52 per cent for the July–May period, compared to 29.16 per cent during the same period last year. The May inflation reading is even lower than the government’s expectations, bolstering the argument for a reduction in the key policy rate in the SBP’s upcoming Monetary Policy Committee meeting on June 10.

In its ‘Monthly Economic Update and Outlook’ report, the Ministry of Finance projected CPI-based inflation to hover around 13.5–14.5 per cent in May 2024, with further deceleration anticipated in the coming months.

The ministry attributed the downward trend to high inflation levels the previous year and improvements in the domestic supply chain of perishable items, staple foods like wheat, and transportation costs.

Brokerage firms also had lower projections. JS Global anticipated a CPI of 13.8 per cent, citing the high base effect from last year and consecutive month-on-month declines. Similarly, Ismail Iqbal Securities projected an inflation rate of 13.1 per cent for May.

With inflation easing more than expected, the focus now shifts to the SBP’s policy response and how it might leverage the improved economic indicators to support further growth.

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