Islamabad, Pakistan – The Consumer Price Index (CPI) for July 2024 registered a year-on-year increase of 11.1%, according to data released by the Pakistan Bureau of Statistics (PBS) on Thursday. This marks a significant decline from the previous month’s 12.6% YoY increase and a sharp drop from the 28.3% YoY inflation recorded in July 2023.
On a monthly basis, however, inflation surged by 2.1% in July 2024, a notable increase from the 0.5% rise observed in June 2024, but lower than the 3.5% jump seen in July 2023. Despite the month-on-month acceleration, the overall inflation figures came in lower than the expectations set by MG Research and the Finance Ministry’s forecast.
Key Factors Behind the Inflation Slowdown
The moderation in the year-on-year inflation rate is attributed to a decrease in electricity charges compared to the previous month. The overall housing and energy costs saw a significant year-on-year increase of 25.3%, yet this was a slower pace than in previous months. Food prices showed a modest rise of 1.6%, while transportation costs surged by 12.2%.
State Bank of Pakistan (SBP) Central Bank’s Response
In response to the evolving economic landscape, the State Bank of Pakistan (SBP) lowered its key policy rate by 100 basis points earlier this week, bringing the rate down to 19.5%. This was the second consecutive reduction, totaling a 250 basis point cut since June 2024. The central bank’s move aims to stimulate economic activity amidst easing inflationary pressures.
Core Inflation Trends
Core inflation, which excludes volatile food and energy prices, remained elevated but showed signs of easing. The average core CPI increased by 13.8% YoY in July 2024, compared to a 14.1% YoY rise in June 2024, and significantly lower than the 20.9% YoY increase seen in July 2023. On a monthly basis, core inflation rose by 0.9% in July 2024, slightly up from the 0.7% increase in June 2024, but down from the 1.2% rise in July 2023.
Real Interest Rate
With the CPI-based inflation rate now at 11.1% and the policy rate at 19.5%, Pakistan’s real interest rate stands at 8.4%. This positive real interest rate is seen as a buffer to control inflation while providing room for potential further easing by the central bank if economic conditions warrant.
Outlook
The latest inflation data suggests that the government’s efforts to stabilize prices are starting to take effect, though challenges remain. The central bank’s policy adjustments will be closely watched in the coming months as Pakistan navigates through a complex economic environment marked by both internal and external pressures.
