FeaturedNationalVOLUME 19 ISSUE # 12

Weekly price trends and inflation outlook

In the past week, Pakistan’s consumer market witnessed notable fluctuations in prices across various commodities. Among the 51 items surveyed, 12 experienced price increases, 17 saw decreases, and 22 remained unchanged.

In January, Pakistan’s headline inflation stayed high, ranging between 27.5% and 28.5%, as revealed in the Monthly Economic Update and Outlook released by the Finance Division. The report attributes this inflationary pressure to elevated prices of perishables and vegetables, along with increased utility costs (electricity and gas).

The surge in onion export orders, triggered by an Indian ban, strained local supply and raised domestic prices, as per the monthly report. Specific commodities like tomatoes experienced price hikes due to supply disruptions caused by severe weather, intensifying the demand-supply gap. Chicken prices also rose due to reduced supply, especially from controlled sheds facing higher input costs.

The government has implemented measures to address these issues, including increasing the minimum export price for onions and lifting the ban on soybean imports to ease the supply situation for perishables and chicken.

Additionally, a decline in fuel costs in January was seen as a promising counterbalance, potentially mitigating the overall impact on consumers and production sectors, according to the report. Considering these factors and the high base effect, inflation is expected to hover around 27.5-28.5% in January 2024 and ease further to 26.5-27.5% in February 2024.

It’s noteworthy that monthly inflation registered at 29.7% year-on-year in December 2023, slightly higher than November’s 29.29%. On a month-on-month basis, there was an increase of 0.8%, aligning with the finance ministry’s projection for December. The first half of FY2024 has seen gradual improvements in macroeconomic conditions, leading to a revival in overall economic activity compared to the challenging FY2023.

In a recent Monetary Policy Committee meeting, the State Bank of Pakistan (SBP) revised its inflation projection for fiscal year 2024 from 20-22% to 23-25%. Pakistan received a tranche of $705.6 million following the successful completion of the first review by the Executive Board of the IMF under Stand by Arrangements (SBA), providing market confidence and exchange rate stability.

Looking ahead, the outlook report concludes that economic activities are expected to further strengthen in the second half of FY2024, contingent on the continuation of sound and prudent economic policies aimed at achieving the set growth target for the current fiscal year.

Meanwhile, the weekly inflation rate in Pakistan saw a significant deceleration, reaching an 11-week low at 39.45% in the week ending February 1, 2024. This downturn, measured through the Sensitive Price Indicator (SPI), is attributed to a drop in food prices, countering the impact of increased petroleum product prices. Despite this decline, the inflation rate remains elevated, indicating ongoing economic challenges, according to the Pakistan Bureau of Statistics (PBS). The inflation reading decreased by 0.28% in the reported week compared to the previous week, marking the second consecutive week of downturn on a week-on-week basis. The inflation rate had sustained above 40% for the preceding 11 consecutive weeks, reaching an eight-month high at 44.60% in the week ending January 18, 2024.

In the reviewed week, among 51 items, prices of 12 (23.53%) increased, 17 (33.33%) decreased, and 22 (43.14%) remained unchanged. Notable reductions included an 18.28% drop in tomato prices to Rs108.32/kg, a 7.77% decrease in egg prices to Rs393.31/dozen, and a 6.99% decline in onion prices to Rs209.52/kg. Additionally, the price of an LPG gas (11.67 kg cylinder) dropped by 1.53% to Rs3,341.48/cylinder.

Other commodities experienced price cuts ranging from 0.28% to 1.29%, covering items such as Lipton tea, potatoes, pulse masoor, cooking oil, and mustard oil. However, the price of super petrol increased by 5.20% to Rs273.93/litre in the reported week compared to Rs260.39/litre in the previous week.

Various items witnessed increases of up to 1.88% on a week-on-week basis, including chicken, diesel, energy saver, bananas, salt powdered, pulse moong, mutton, gur, beef, tea prepared, and georgette, according to the PBS.

The State Bank of Pakistan (SBP) anticipates a significant deceleration in the benchmark monthly inflation reading, measured through the Consumer Price Index (CPI), starting from March 2024 and onwards. However, the SBP revised its projection for the average monthly inflation reading for the full fiscal year 2024 to be in the range of 23-25%, up from the previous estimate of 20-22%.

The expected increase in the average inflation reading is based on record multi-decade high readings observed in the first half of the fiscal year. The reading slightly decelerated to 28.3% in January 2024 from the three-month high of 29.7% recorded in December 2023. The SBP emphasized that the non-energy inflation reading has remained consistent with its July 2023 projection, as the hike in petrol and gas prices necessitated a revision of the full-year forecast.

As Pakistan navigates economic challenges, the recent week’s price trends reveal a dynamic landscape with both declines and increases in essential commodities. Noteworthy reductions in certain food items provide a respite, yet the uptick in super petrol prices raises concerns. Looking ahead, the State Bank of Pakistan’s projection of a significant deceleration in monthly inflation from March 2024 onwards offers a glimpse of potential stability. However, the revised annual forecast, now in the range of 23-25%, underscores the persistent challenges that necessitate careful economic navigation in the coming fiscal year.