New Delhi: Inflation in Pakistan continues to break the back of common people. One can frequently encounter the phrase ‘mehangai ka toofan barkarar’—the storm of inflation persists—on the screen while scrolling through Pakistani news channels.
Driven primarily by high power tariffs and food prices, consumer inflation in Pakistan jumped to 29.7 per cent year-on-year in December 2023. On a monthly basis, the CPI was up for the second month in a row, rising 0.8 per cent from November, according to data released by the Pakistan Bureau of Statistics (PBS) Monday.
While inflation runs in the high 20s, Pakistan’s central bank is hoping to bring it under its target of 5-7 per cent. That too in the medium term. Jameel Ahmed, governor of the State Bank of Pakistan, said in a report released Friday that he expected inflation to ease to 20-22 percent in the financial year 2024.
Pakistan recorded its highest-ever inflation in May 2023, at 38 per cent.
The data by PBS came on the back of the State Bank of Pakistan’s decision to keep the key interest rate unchanged in the fourth policy meeting since June when it hiked the key rate to 22 per cent—the highest ever. This was one of the conditions proposed by the IMF for a $3 billion bailout that helped Pakistan stave off a sovereign default in July but impeded measures to rein in inflation.
Besides conditions proposed by the IMF that led to record borrowing costs, external conditions that compelled the caretaker government to enact fiscal adjustments, coupled with rising fuel prices, further drove up inflation.
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What’s driving the inflation
Reacting to data released by the PBS Monday, Aadil Jillani, director of R&D at Karachi Chamber of Commerce and Industry, wrote on X that Pakistan’s CPI inflation “skyrocketed” mainly due to food and energy prices in December 2023, “hitting Poor/Middle clas (sic) the hardest!”
Pakistan's CPI Inflation Skyrocketed to 27.7% mainly due to Food prices (Fresh vegetables by 65%,wheat by 59% & sugar by 49%) & Energy prices (gas charges by 520% & Electricity charges by 61.6%) in Dec-23 vs last year, hitting Poor/Middle clas the hardest! pic.twitter.com/Ndi75NB3LB
— AaDiL Jillani 🇵🇰 (@Aadil_Jillani) January 2, 2024
According to the IMF’s World Economic Outlook published last October, annual inflation in Pakistan at 23.6 per cent was higher than the 7.8 per cent projected annual rate of inflation for ‘Emerging market and developing economies’—the analytical group in which IMF places Pakistan.
In the report published Friday, the governor of Pakistan’s central bank conceded that the country missed its fiscal and primary surplus targets for 2023 by a large margin, with real GDP shrinking to 0.2 percent.
According to a report by Dawn, power tariffs in Pakistan rose by 15.76 per cent and LPG prices by 2.62 per cent in December. It added that food inflation for the month was 28.8 per cent in urban and 29.3 per cent in rural areas.
A more thorough analysis revealed that core inflation — which does not include the changes in prices of food and energy — rose by 0.4 percentage points in urban areas and 0.8 percentage points in rural areas in December.
Food and non-alcoholic beverages account for 35 percent of Pakistan’s CPI, followed by housing, water, power, gas and other fuels 24 per cent, clothing and footwear 9 per cent, and restaurants and hotels 7 per cent, among others.
(Edited by Prashant)