Pakistan’s Inflation Drops To The First Single Digit Unit

The latest inflation figure comes after the State Bank of Pakistan (SBP) reduced the key policy rate by 100 basis points in July, bringing it down to 19.5%. The SBP has expressed concerns about potential risks to the inflation outlook, particularly from fiscal challenges and decisions related to energy pricing.

Inflation has been a persistent issue in Pakistan, reaching a record high of 38% in May last year. However, the rate has been declining steadily since then, offering some relief to the economy.

• The inflation rate aligns with official forecasts, which anticipated a range of 9.5-10.5%.
• Pakistan’s year-on-year Consumer Price Index (CPI) inflation dropped to 9.6% in August 2024, down from 11.1% in July.
• This marks the first time in three years that inflation has returned to single digits, according to data from the Pakistan Bureau of Statistics (PBS). The last instance of such low inflation was in October 2021, when it stood at 9.2%.
• On a month-on-month basis, CPI inflation rose by 0.4% in August 2024, a slower pace compared to the 2.1% increase in July and the 1.7% rise in August 2023.
• The Ministry of Finance had previously projected inflation to be between 9.5% and 10.5% for August, citing economic stability as a contributing factor. The ministry also forecasts inflation to further decrease to 9-10% in September 2024.

Market Projections

Brokerage firms had also anticipated the inflation slowdown. JS Global predicted a 9.3% inflation rate for August, marking the first return to single digits in three years. The firm suggested that this easing trend could prompt further interest rate cuts by the Monetary Policy Committee (MPC) in September, potentially reducing the policy rate to 18%

Arif Habib Limited (AHL) also forecasted a continuation of the interest rate easing cycle, with August’s inflation expected to be around 9.6%. AHL projects the policy rate could drop to as low as 14-14.5% by June 2025, with another 100 basis point cut anticipated in September 2024.

Urban vs. Rural Inflation

The PBS data also revealed a disparity between urban and rural inflation. Urban inflation stood at 11.7% year-on-year in August 2024, down from 13.2% in July and significantly lower than the 25.0% recorded in August 2023. Monthly, urban inflation rose by 0.3%, compared to a 2.0% increase in the previous month.

In rural areas, inflation was recorded at 6.7% year-on-year in August 2024, a decline from 8.1% in July and from 30.9% in August 2023. Month-on-month, rural inflation increased by 0.6%, down from a 2.2% rise in the previous month.