Inflation in Pakistan surges to 29.7% YoY in December 2023

ISLAMABAD: In a recent announcement, the Pakistan Bureau of Statistics (PBS) revealed that the country’s headline inflation reached 29.7 per cent on a year-on-year basis in December, marking a slight increase from the November figure of 29.29 per cent.

On a month-on-month scale, the reading showed an uptick of 0.8 per cent.

The cumulative average inflation for July–December stands at 28.79 per cent, representing a surge compared to the same period in the previous year, which recorded 25.02 per cent inflation.

This inflation reading surpasses the government’s projections, as the Ministry of Finance’s ‘Monthly Economic Update and Outlook’ report forecasted CPI-based inflation for December to range between 27.5 per cent and 28.5 per cent.

Despite an upward revision of administered prices, particularly gas prices, the ministry anticipates a moderate inflation outlook for the remaining months of FY2024.

Factors contributing to this moderate outlook include a stable exchange rate, controlled aggregate demand, improved supply conditions, a decline in international commodity prices, and a favourable base effect.

Experts attribute the 0.8 per cent increase in inflation to a rise in the housing and utility index, primarily due to increased electricity charges.

Industry analysts note that this reading surpassed expectations due to the aforementioned increase in electricity charges.

Looking ahead, experts foresee CPI inflation remaining on the lower side in the coming months, attributed to a decline in local fuel prices and the high base effect from the previous year.

Breaking down the data, the PBS reported that CPI inflation in urban areas increased to 30.9 per cent on a year-on-year basis in December 2023, compared to 30.4 per cent in the previous month and 21.6 per cent in December 2022.

On a month-on-month basis, urban inflation rose to 0.7 per cent in December 2023.

Meanwhile, CPI inflation in rural areas stood at 27.9 per cent on a year-on-year basis in December 2023, compared to 27.5 per cent in the previous month and 28.8 per cent in December 2022. On a month-on-month basis, rural inflation increased to 1.0 per cent in December 2023.

The central bank’s projection for average inflation in FY24 falls within the range of 20–22 per cent.

In its recent meeting, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) opted to keep the key policy rate unchanged at 22 per cent, in line with expectations.

The committee justified this decision by noting that the real interest rate remains positive on a 12-month forward-looking basis and that inflation is anticipated to follow a downward trajectory.

The MPC expects headline inflation to significantly decrease in the second half of FY24, attributing this decline to controlled aggregate demand, alleviated supply constraints, moderation in international commodity prices, and a favourable base effect.

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