ISLAMABAD: The headline consumer inflation eased for the fifth month to 11.8 per cent in May, the lowest level in 30 months and significantly less than the record 38pc reading in May 2023, official data showed on Monday.

The decrease in the inflation rate is mostly attributable to a reduction in food inflation in both urban and rural areas. The fall is mostly caused by a sharp drop in the prices of wheat, wheat flour, chicken and vegetables like tomatoes and onions during the month under review.

The dropping inflation rate has 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.

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

Records month-on-month decline of 3.2pc, largest in 47 years

The headline inflation is measured by a basket of goods and services called the Consumer Price Index (CPI). The index fell 3.2pc from the previous month, the second-largest month-on-month decline in the country’s history, according to the research firm Arif Habib Ltd. The highest decline of 4.58pc was recorded 47 years ago, in May 1977.

Independent economists mainly attribute the low inflation rate to three factors: the high base of last year, no increase in the discount rate, 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 May.

According to the IMF and central bank projections, inflation is expected to decrease in the final quarter of the current financial year.

The average CPI inflation during the 11 months (July to May) of the current fiscal year now stands at 24.52pc compared to 29.16pc a year ago.

In May, urban inflation was 14.3pc year-on-year and -2.8pc month-on-month, down from 19.4pc and -0.4pc in March. Rural inflation was 8.2pc year-on-year and -3.9pc month-on-month, down from 14.5pc and -0.9pc in the previous month.

Food, core inflation

Food inflation for May stood at 2.2pc in urban areas and -0.1pc in rural areas, whereas non-food inflation was 23.6pc in urban areas and 17.2pc in rural areas. Food inflation has dropped to a single digit since October 2021, when it was at 9.4pc. Since then, food inflation has progressively increased, with the greatest level reported in May 2023 at 48.1pc.

Core inflation, which strips out volatile food and energy prices, slightly decreased to 12.3pc in urban areas compared to 13.1pc last month. In rural areas, core inflation was recorded at 17pc, down from 19.3pc.

Main contributors

In urban areas, the food items whose prices saw the highest month-on-month decline in May included tomatoes (-51.23pc), onions (-51.15pc), chicken (35.28pc), wheat (-22.17pc), wheat flour (-20.12pc), fresh fruits (-8.06pc), fresh vegetables (-7.73pc), wheat products (-4.12pc), pulse masoor (-2.51pc), condiments and spices (-2.48pc), rice (-2.42pc), readymade food (-1.72pc), mustard oil (-0.73pc), dry fruits (-0.67pc), pulse moong (-0.50pc), fish (-0.22pc), gur (-0.05pc) and ice cream (-0.02pc).

The month-on-month increase was recorded in prices of potatoes (14.73pc), meat (4.06pc), beans (3.91pc), eggs (1.60pc), vegetable ghee (1.27pc), cooking oil (1.26pc), pulse mash (1.06pc), gram whole (0.63pc), milk fresh (0.60pc), sugar (0.59pc), pulse gram (0.51pc), sweetmeat (0.50pc), milk powder (0.47pc), honey (0.38pc), beverages (0.36pc), milk products (0.19pc), besan (0.17pc) and bakery and confectionary (0.16pc).

In contrast, the items whose prices dropped included liquified hydrocarbons (-9.45pc), electricity charges (-4.50pc), motor fuel (-3.18pc), communication apparatus (-2.35pc), construction input items (-0.53pc), solid fuel (-0.40pc), motor vehicles (-0.18pc), household equipment (-0.14pc) and motor vehicle accessories (-0.01pc).

Published in Dawn, June 4th, 2024