February 2024 marked a significant milestone in Pakistan’s economic outlook, as the Consumer Price Index (CPI) slowed down to a 20-month low, registering at 23.1% year-on-year (YoY). This downturn from the previous month’s 28.34% YoY and February 2023’s 31.5% YoY showcases a notable easing in the inflationary pressures that have beleaguered the nation. The Pakistan Bureau of Statistics (PBS) released these figures, offering a beacon of hope amidst economic challenges.
CONSUMER PRICE INDEX: A CLOSER EXAMINATION
The month-to-month analysis reveals a marginal uptick in CPI by 0.03 in February 2024, in stark contrast to a 1.8% increase in the preceding month and a 4.3% increase in February of the previous year. This trend aligns with market anticipations, reflecting a stabilizing economic environment. Consequently, the average annual inflation rate for the first eight months of the fiscal year 2024 (8MFY24) escalated to 28% YoY, a slight increase from 26.17% YoY in 8MFY23.
URBAN VS. RURAL INFLATION DYNAMICS
The urban inflation narrative presents a YoY increase to 24.9% in February 2024, a decrease from the preceding month’s 30.2% and significantly lower than January 2023’s 28.8%. On a month-to-month basis, urban CPI saw a modest rise of 0.2%, a reduction from the previous month’s 1.8% and February 2023’s 4.5%.
Rural areas, on the other hand, experienced a YoY inflation rate of 20.5% in February 2024, down from 25.7% in the previous month and a substantial decrease from February 2023’s 35.6%. The month-on-month rural inflation also decelerated, registering a 0.3% increase compared to a 1.9% increase the month before and a 4% increase in the same month last year.
SENSITIVE PRICE AND WHOLESALE PRICE INDICES
In February 2024, the Sensitive Price Index (SPI), a crucial metric for tracking the effect of inflation on necessities, increased to 30.4% year over year. While this is a rise, it is less than the 33.6% recorded in January 2023 and the 36.2% recorded in the preceding month. The SPI saw a 0.8% month-over-month decline, indicating a respite in the prices of volatile goods.
In February 2024, the Wholesale Price Index (WPI), which measures inflation at the wholesale level, rose by 18.7% year over year. This represents a decline from the 27% recorded in the previous month and a noteworthy decline from the 36.4% recorded in February 2023. Sequentially speaking, WPI inflation increased by 1.1%, which was less than the 1.5% increase in the previous month and the 8.2% increase in February 2023.
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THE REAL INTEREST RATE CONUNDRUM
With CPI-based inflation standing at 23.1% and the policy rate at 22%, Pakistan finds itself navigating the delicate balance of stimulating economic growth while managing inflation, as evidenced by a real interest rate of -1.1%. This scenario underscores the challenges and complexities in steering the country toward sustainable economic stability.
