Inflation for June in Pakistan registered at 12.6 per cent year-on-year, according to data released by the Pakistan Bureau of Statistics (PBS) on Monday. This marks an increase from May’s 11.8pc rise but remains significantly lower than the 23.4pc average recorded for the financial year ending June 30.
Monthly inflation trends
On a month-to-month basis, the consumer inflation, measured by the Consumer Price Index (CPI) — which includes a basket of goods and services — rose by 0.5pc in June. This rise aligns with forecasts from both the State Bank of Pakistan (SBP) and the finance ministry, who anticipated an uptick due to increased spending during the Eid-ul-Azha holiday.
Comparative analysis
Despite the increase, the inflation rate has significantly eased from its historic high of 38pc in May 2023. This slowdown offers some relief for Pakistan’s economy, which has been grappling with high inflation and sluggish growth.
Policy responses and economic measures
Interest rate cuts
Last month, the SBP cut the main interest rate by 150 basis points, lowering it from a historic high of 22pc. This was the first rate cut in nearly four years, signalling a shift in monetary policy aimed at stimulating economic activity.
Finance Minister Muhammad Aurangzeb has expressed optimism about further rate cuts within the year, citing the trend of falling inflation. These rate cuts are crucial as the government attempts to reduce its fiscal deficit, which is currently at 5.9pc of GDP. A significant portion of this deficit is attributed to interest payments on local debt.
Fiscal tightening and IMF negotiations
Fiscal tightening remains a pivotal element of Pakistan’s ongoing negotiations with the International Monetary Fund (IMF). The government is seeking a long-term bailout package estimated between $6 billion and $8 billion and is aiming to secure an agreement this month. This follows the recent passage of a tax-heavy budget, which is expected to play a role in controlling inflation and stabilising the economy.
Future projections and concerns
Seasonal and structural inflation
While the recent data offers a glimpse of easing inflation, the SBP has warned of potential increases beyond the seasonal rise. The central bank’s monetary policy statement last month highlighted the likelihood of further inflation due to anticipated taxation measures in the annual budget.
Economic stability and growth
The reduction in the inflation rate and the interest rate cut are steps towards economic stabilisation. However, the government must carefully balance these measures to ensure sustainable growth. The upcoming months will be crucial in determining the effectiveness of these policies and their impact on Pakistan’s economic health.
