Pakistan currently grapples with the highest inflation rate in Asia, a concern persisting despite a notable slowdown in October.

The Consumer Price Index (CPI) inflation, while showing a decrease from 31.4 percent in September to 26.89 percent in October, remains a pressing economic challenge. This has prompted the State Bank of Pakistan (SBP) to adopt a multifaceted approach, involving interest rate hikes and a strategic shift towards flexible inflation targeting.

The weekly inflation burden intensified, experiencing a nearly 10 percent surge in the week ending November 16 compared to the previous week. This notable increase was driven by a recent five-fold rise in gas prices, with escalating food costs also playing a significant role, as per official data. Official statistics from the Pakistan Bureau of Statistics (PBS) revealed that the Sensitive Price Indicator (SPI), which measures the weekly price movement of predominantly kitchen items, reached 41.9 percent in the reviewed week, compared to 29.86 percent the previous week. Over the preceding week, it saw a 9.95 percent increase.

Significantly, SPI inflation has been in double digits for most of the current and last fiscal years, reflecting the impact of currency devaluation and higher energy tariffs. The populace, already grappling with high inflation, faces an even tougher situation as the cost of living continues to rise. According to PBS, over the past 10 weeks, the SPI level exhibited mixed trends when compared to the corresponding weeks of the previous year. It stood at 26.25 percent on September 14, rising to 38.66 percent on September 21, and fluctuating through subsequent weeks, culminating in a surge to 41.9 percent by the week ending November 16.

Major price hikes were observed in gas (480 percent), tea (8.9 percent), masoor pulse (5.3 percent), chicken (4 percent), garlic (3.1 percent), salt powdered (3 percent), wheat flour (2.6 percent), tea prepared (2.1 percent), LPG, and potatoes (2 percent each). Additionally, shirting prices increased by 1.1 percent in a week. For the lowest income slab (earning up to Rs17,732/month), SPI inflation stood at 35.72 percent, while for the group spending more than Rs44,175/month, it was recorded at 39.67 percent. In the week, the average prices of 25 items (49.02 percent) increased, 13 items (25.49 percent) decreased, while prices of 13 items (25.49 percent) remained unchanged, according to the SPI bulletin.

The State Bank of Pakistan (SBP) announced its aim to implement a flexible inflation targeting regime over the next five years, a policy framework balancing long-term price stability and economic growth. The SBP, combating high inflation for the past two years, emphasized the importance of keeping inflation within the government’s medium-term target range of 5-7 percent, as outlined in its 2023-2028 strategic plan. This plan, the first after the revision in the SBP Act last year, takes into account the significantly enhanced mandate, autonomy, and accountability introduced through the changes in the Act.

Since September 2021, the State Bank of Pakistan (SBP) has aggressively increased interest rates by a substantial 1,500 basis points to curb inflation. However, starting from July of the current year, it ceased further rate hikes, citing signs of economic recovery and easing inflation pressures. The central bank emphasizes that maintaining price stability is the primary objective of its monetary policy.

In pursuit of this objective, the SBP plans to enhance the effectiveness of monetary policy through the implementation of a flexible inflation targeting regime. This involves improving the transmission mechanism of monetary policy, strengthening research and data management capabilities, and addressing structural issues within Pakistan’s economy in collaboration with stakeholders, according to the central bank’s strategic plan.

The SBP underscores the importance of achieving and maintaining inflation close to the government’s medium-term target of 5-7 percent. The central bank believes that a flexible inflation targeting regime, balancing long-term price stability and economic growth, is crucial. The reduction in inflation is deemed essential for fostering sustainable economic growth, alleviating poverty, and enhancing the overall economic well-being of the population.

The SBP Vision 2028 outlines the central bank’s commitment to fostering both price and financial stability while contributing to the sustainable economic development of the country. The strategic plan acknowledges the evolving risks and challenges to the economy and financial stability, including factors such as climate change, rapid digital innovations and disruptions, and growing cybersecurity threats.

In addition to its focus on price stability, the SBP’s strategic goals include enhancing the efficiency, effectiveness, fairness, and stability of the financial system. The central bank aims to promote inclusive and sustainable access to financial services, transition to a Shariah-compliant banking system, build an innovative and inclusive digital financial services ecosystem, and transform the SBP into a high-tech, people-centric organization.

In conclusion, Pakistan’s battle against inflation unfolds against a backdrop of shifting economic indicators and evolving challenges. The SBP’s commitment to a flexible inflation targeting regime underscores a nuanced approach to balancing price stability and economic growth. As the nation aims to achieve and maintain inflation within the government’s medium-term target, the effectiveness of monetary policy, research initiatives, and collaboration with stakeholders become pivotal. The SBP’s Vision 2028 not only reflects a commitment to economic stability but also addresses broader financial goals and technological transformations. Navigating these paths will be crucial in steering Pakistan towards a future marked by sustainable growth and enhanced financial resilience.