ISLAMABAD: The government on Monday announced that the annual inflation surpassed its budgetary target and remained at 29.18 per cent for 2022-23 owing to the unprecedented rupee depreciation, increase in domestic taxes and rising global commodity prices.

The inflation target was projected at 11.5pc for the outgoing fiscal year. It was recorded at 12.15pc in FY22, according to data released by the Pakistan Bureau of Statistics on Monday.

Global inflationary pressures have intensified in recent years even though there’s been some improvement in the global supply chain over the last few months. However, the government opted for several tax measures, especially indirect taxes, which pushed up consumer prices.

Consumer inflation was recorded at 29.4pc in June, easing from the unprecedented 38pc in May. This deceleration was mainly due to a slight reduction in food prices and a high base effect.

Month-on-month, headline inflation slows to 29.4pc in June

Financial mismanagement, rupee depreciation and the government’s failure to unlock IMF funding were the key factors in taking annual price hikes to such record highs.

The inflation has been rising since mid-2022 after the government took painful measures as part of fiscal adjustments demanded by the International Monetary Fund to unlock stalled funding.

Inflation had stayed above 20pc from June last year to January. It then hit 31.6pc in February, crossed 35pc in March, escalated to 36.4pc in April and 37.97pc in May now eased to 29.4pc in June. The reading was 12.15pc in June.

However, monthly inflation — measured by a basket of products and services called the Consumer Price Index (CPI) — is likely to go down from July due to a high-base effect. The international commodity price outlook is favourable and may help offset the negative impact of currency depreciation, according to the finance ministry.

Additionally, timely measures leading to a better crop outlook, expected political stability and a stable exchange rate are expected to contribute to price stability.

Annual inflation in June was 27.3pc in urban areas and 32.4pc in rural areas. Food inflation for the month was 40.8pc and 41.5pc for urban and rural areas, respectively, whereas non-food inflation was 18.7pc in urban and 23.8pc in rural areas.

The non-perishable food items saw an increase of 41.79pc in June while perishable food items witnessed an increase of 24.82pc.

Core inflation, which strips out food and energy, stood at 18.5pc in urban areas and 25.2pc in rural areas. The government has increased the interest rate to the highest level of 22pc in the country’s history.

Main contributors

In urban areas, food items whose prices rose the most in June compared to last year were tea (113.09pc), wheat flour (89.89pc), rice (72.83pc), potatoes (64.69pc), wheat (62.27pc), chicken (57.72pc), wheat products (56.81pc), pulse moong (50.50pc), pulse mash (49.92pc), beans (47.60pc), sugar (41.64pc), fresh fruits (40.31pc), beverages (38.17pc), eggs (36.96pc), bakery and confectionary (36.83pc), gur (36.60pc), milk fresh (31.8pc), condiments and spices (30.04pc), gram whole (28.42pc), pulse gram (24.14pc), cooking oil (19.62pc), meat (18.50pc), fresh vegetables (13.71pc), vegetable ghee (8.90pc) and mustard oil (5.97pc).

The non-food products whose prices saw the highest increases included textbooks (113.98pc), stationery (68.53pc), gas charges (62.82pc), household equipment (39.80pc), motor vehicles (36.61pc), construction input items (35.62pc), solid fuel (30.81pc), marriage hall charges (25.29pc), tailoring (19.04pc), motor fuel (18.54pc), construction wage rates (16.88pc), medical tests (16.16pc), household textiles (16.15pc), dental services (12.83pc), transport services (12.47pc), liquified hydrocarbons (11.74pc), electricity charges (7.97pc), house rent (5.34pc), water supply (5.29pc) and footwear (1.96pc).

The finance ministry expects the inflation rate is expected to normalise in the medium term due to improvements in the agriculture sector and favourable global and domestic conditions.

High fuel prices have increased production and transportation costs, making food more expensive. The costly fertiliser has also made it difficult for farmers to afford essential inputs. The poultry industry is facing a crisis due to high import costs and restrictions on soybean imports. Although international prices for agriculture-related commodities began decreasing in the third quarter, currency depreciation and high fuel prices have prevented this from being reflected in domestic markets.

Published in Dawn, July 4th, 2023