ISLAMABAD: The government announced on Monday that the annual inflation for 2023-24 exceeded its budgetary target, reaching a staggering 23.41 per cent owing to an increase in electricity, gas, and essential kitchen items.

The projected target was 21pc for the outgoing fiscal year.

According to data released by the Pakistan Bureau of Statistics on Monday, the average monthly inflation fluctuated over the year. The headline consumer inflation was 28.3pc in July 2023, peaked at 31.4pc in September, and then started to decline in January. It reached its lowest level of 11.8pc in May but reversed upward to 12.6pc in June.

According to the finance ministry, the coordinated policies, lower global commodity prices, improved food supply and the high base effect have contributed to this favourable outcome of decline in the past few months.

Costly energy, food lift June reading to 12.6pc from the preceding month’s 11.8pc

However, it further said the recent conflict in the Middle East has substantially increased geopolitical risks in the region, posing significant global repercussions. So far, commodity markets have responded calmly to the onset of the conflict.

Implementing timely measures has led to a more promising crop outlook domestically. It, along with political stability and a steady exchange rate, is expected to contribute to achieving price stability.

According to the finance ministry, medium-term inflation is projected to normalise in FY25 and FY26 due to improvements in the agriculture sector and anticipated favourable global and domestic conditions.

The deceleration in inflation provided a solid foundation for the State Bank of Pakistan’s (SBP) monetary policymakers to reconsider the key interest rate, which has remained at the historic high of 22pc for seven consecutive policy meetings.

Last month, the central bank cut the key interest rate by 150 basis points, the first reduction in almost four years, bringing it down to 20.5pc.

Since May 2022, the country has been beset by inflation above 20pc as it navigated reforms as part of an International Monetary Fund bailout programme.

A basket of goods measures the headline inflation and services called the Consumer Price Index (CPI). The index slightly increased 0.5pc from May.

Independent economists attribute the low inflation in June to three factors: last year’s high base, no discount rate increase, and stability in global commodity prices.

They say the Pakistan Bureau of Statistics (PBS) is measuring inflation from a high base of last year. The lower rate did not mean prices did not increase, let alone dropped, in June.

In June, urban inflation was 14.9pc year-on-year and 0.6pc month-on-month, slightly up from 14.3pc and -2.8pc in May. Rural inflation was 9.3pc year-on-year and 0.3pc month-on-month, going up from 8.2pc and -3.9pc in the previous month.

Food, core inflation

Food inflation for June stood at 2.6pc in urban areas and 1.3pc in rural areas, whereas non-food inflation was 24.3pc in urban areas and 17.9pc in rural areas. Food inflation dropped to a single digit at 9.4pc in October 2021. Since then, it has progressively increased, hitting an unprecedented level at 48.1pc in May 2023.

Core inflation, which strips out volatile food and energy prices, was recorded at 12.2pc in urban areas and 17pc in rural areas. In the past 12 months, core inflation in urban areas was 18.4pc in July 2023 before gradually declining to 12.2pc in June 2024.

Published in Dawn, July 2nd, 2024