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Experts Identify Key Factors Behind Pakistan’s Record-High Inflation

Record-High Inflation in Pakistan: The Impact of Currency Devaluation and Global Commodity Prices

April saw Pakistan experience record-high inflation at 36.4%, and experts have identified two primary reasons for this surge. Firstly, the sharp devaluation of the Pakistani rupee against the US dollar played a significant role. Secondly, the global rise in commodity prices also contributed to the inflationary pressure.

Weekly Inflation in Pakistan Drops for Second Consecutive Week

According to the sensitive price indicator (SPI), there was a 0.51% decrease in weekly inflation for the week ending December 21. This marks the second consecutive weekly downtick, although overall inflation remains high. Notably, the drop in inflation is attributed to reduced petrol and potato prices.

Pakistan Bureau of Statistics Reports Surge in Weekly Inflation

The Pakistan Bureau of Statistics (PBS) reported a 42.60% surge in weekly inflation, primarily driven by a significant increase in gas prices compared to the same week in the previous year.

Analysis by Maaz Azam: Week-on-Week Decline in Inflation

Maaz Azam, an analyst at Optimus Capital Management, attributes the week-on-week decline in inflation to the reduction in petrol and potato prices. The decline contributed to a negative 0.4 percentage points and negative 0.19 percentage points, respectively, resulting in an overall decrease in weekly inflation of 0.51%.

Notable Changes in Prices

According to PBS data, there were notable decreases in potato prices (13.17%) and petrol super prices (4.97%). Additionally, diesel, tomatoes, sugar, wheat flour bag, chicken, rice basmati broken, and the price of cooking oil (5 litres) also experienced reductions. On the other hand, significant increases were observed in the prices of eggs, firewood whole, onions, pulse moong, pulse gram, garlic, rice irri-6/9, pulse masoor, LPG, bananas, shirting, and the price of georgette.

Year-on-Year Basis: Surge in Inflation

On a year-on-year basis, the inflation reading surged by 42.60%, primarily due to a 1108.59% increase in gas charges for Q1 compared to the same week in the previous year.

Financial Experts Predict Elevated Inflation in December 2023

Financial experts anticipate that the benchmark monthly inflation reading, measured by the consumer price index (CPI), will remain elevated in December 2023, reaching around 30%. This is mainly attributed to the significant gas price hike implemented by the government in November 2023. In November, the CPI reading rose to 29.2% compared to the 10-month low of 26.9% in October.

Revision of Average Monthly Inflation Reading Expected

The central bank is expected to revise its average monthly inflation reading for the current fiscal year in January 2024. The initial forecast in July 2023 projected a range of 20-22% for FY24. However, after recording CPI inflation at 19% in FY23, the bank is now projected to decelerate the reading to 5-7% in FY25.

Source: The Express Tribune