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Pakistan Inflation Surges to 24.93% Amid Rupee Slump

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Pakistan Inflation Surges to 24.93% Amid Rupee Slump
Food inflation in July at 28.77%, transport at 64.73%
Central bank scheduled to announce monetary policy on


Consumer prices rose 24.93% last month from a year earlier, according to data released by the government Monday. That compares with a median estimate for a 23.5% gain in a Bloomberg survey of economists and a 21.3% jump in June.

Inflation will keep on rising as the government eliminates subsidies and keep energy prices elevated under a commitment to the International Monetary Fund to secure $1.2 billion, according to Abdul Azeem, head of research at Spectrum Securities Ltd.

“The uptrend will continue for a few months as electricity hike is still not reflected and there will be an increase in gas prices too,” Azeem said.

Food inflation in July quickened to 28.77% year-on-year while transport surged 64.73%, according to data.

The South Asian nation had raised gasoline and electricity prices by 50% in the past few months to win the IMF bailout. The electricity price hike approved last week has yet to impact inflation.

What Our Economist Says…

Pakistan’s inflation heated up even more in July and will get hotter yet — prompting the State Bank of Pakistan to hike rates further. We see consumer-price gains peaking at 27.5%, probably in October.

—Ankur Shukla, India economist

Pakistan’s rupee fell more than 14% in July — the worst month since at least 1989 — amid a dollar shortage and concern that political uncertainty may delay the IMF bailout.

Authorities are banking on the IMF loan to stave off a potential default. The board of the multilateral lender is expected to meet later this month for a final approval after the staff level agreement.

Pakistan’s central bank will also keep a watch on inflation trajectory when it holds its next monetary policy review on Aug. 22. State Bank of Pakistan has raised rates by 525 basis points since the start of the year to tame prices.


 

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Inflation for the month of July, as measured by the Consumer Price Index (CPI), has clocked in at 24.93 per cent, the highest year-on-year rise since November 2008.

According to data shared by the Pakistan Bureau of Statistics (PBS) on Monday, CPI inflation increased by 4.35pc compared to June.

Last month, the YoY inflation was measured at 21.3pc, which was the highest figure in over 13 years.

According to the PBS data, inflation was measured at 23.6pc in urban areas and 26.93pc in rural areas.

The inflationary trend was driven by the transport sector, which saw prices increase by 64.73pc year-on-year, followed by perishable food items at 32.93pc and non-perishable food items at 28.12pc.

Other than education and communication, which saw inflation at 9.79pc and 4.09pc, respectively, all other sectors saw double-digit increases.

These sectors are:

  • Restaurants and hotels: 24.97pc
  • Alcoholic beverages and tobacco: 22.48pc
  • Housing and utilities: 21.78pc
  • Furnishing and household equipment maintenance: 19.69pc
  • Miscellaneous goods and services: 17.14pc
  • Recreation and culture: 15.41pc
  • Clothing and footwear: 14.57pc
  • Health: 11.22pc
According to the PBS press release, the prices of motor fuels rose as high as 99pc year-on-year, followed by electricity at 86pc and liquefied hydrocarbons by up to 51pc.

Among the food items that saw the highest price increases compared to last year were pulses, onions, ghee and cooking oil.

Earlier this week, the Ministry of Finance said in its Monthly Economic Update and Outlook for July that the year-on-year inflation, which has remained in double digits since Nov 2021, would continue in July and hover around the level observed in June (21.3pc) due to the increase in international commodity prices, particularly of energy, and the depreciation of the rupee.

The outlook said not only international commodity prices, especially oil and food prices, but the depreciation of the exchange rate influenced domestic inflation. It conceded that inflation mostly in the last two months was also coming from supply shocks, the impact of which has overshadowed government efforts in maintaining prices.

It warned that prevailing political unrest was causing governance problems and intensifying the market uncertainties already caused by low foreign exchange reserves and external pressures.

“Inflationary and external sector risks are building macroeconomic imbalances in the economy. Furthermore, the ongoing political unrest is increasing economic uncertainty, which is causing the rupee to depreciate and has an impact on the cost of production. All these factors are making the economic outlook uncertain.”
 

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