Karachi: The monthly inflation rate in Pakistan soared to 28.3 per cent in July – significantly higher than the market expectation of 26 per cent. Several factors have played their part in increasing the inflation rate, including a hike in electricity prices and basic food items like vegetables, meat, rice, sugar, & wheat. Moreover, the federal government raised the petrol prices by Rs19.5 per litre for the first half of August 2023.
According to Ismail Iqbal Securities, it is expected that the inflation rate in Pakistan would decrease in August. However, if the rate does not come down then the State Bank of Pakistan may have to increase the key policy rate (currently at 22 per cent). Policy rate holds an important value as it is used to regulate economic conditions & control inflation readings. Earlier, the SBP believed that the inflation rate would stay somewhere around 20 per cent to 22 per cent in the Fiscal Year 2024, which is why the policy rate was kept at 22 per cent.
SBP’s hope of decreasing inflation is based on the trend of the inflation rate since May 2023. The inflation rate in Pakistan during May’23 reached 38 per cent and dropped drastically to 29.4 per cent in June’23.
Similarly, the Monetary Policy Committee (MPC) projects that the inflation rate will drop to a range of 20 to 22 per cent in FY24 – down from 29.2 per cent in FY23.