Pakistan witnessed a second consecutive month of accelerated headline inflation in December, defying expectations and posing challenges amidst record borrowing costs. According to a Bloomberg report, consumer prices surged by 29.66% compared to the previous year, surpassing the median estimate of 29.05% from a Bloomberg survey and a reading of 29.23% in November.

Holding its benchmark interest rate for the fourth time in a row, the State Bank of Pakistan kept record borrowing costs pending approval of a $700 million loan payout from the International Monetary Fund. The bank’s projections are at odds with this increase in inflation. The executive board of the IMF is scheduled to convene on January 11, 2024.

INFLATION DATA

Major contribution to the inflationary pressure is the 20% depreciation of Pakistan’s currency over the past year, making it one of the worst-performing currencies globally. This depreciation has added strain to consumer prices, exacerbating the economic challenge.

Central Bank anticipates a moderation in Asia’s fastest inflation in the upcoming months due to a decline in international commodity prices, the finance ministry projects a more moderate inflation rate between 27.5% and 28.5% for December.

The government’s resolve to stay on track with the International Monetary Fund bailout, including tax hikes and increased energy costs, have further burdened consumers. In preparation for the upcoming national elections in February, the caretaker government, however, mitigated some pressure by reducing retail gasoline prices by Rs64 ($0.23) per liter in the last three months, aligning them with global oil price trends after a series of rate hikes over the past year.

Official data highlights substantial increases in specific sectors contributing to inflation, with transport prices soaring by 28.6% in December from a year ago, food costs escalating by 27.5%, and housing, water, gas, and electricity prices witnessing a substantial rise of 37.68%.

The authorities are still having difficulty maintaining economic stability, controlling inflation, and satisfying the demands of the International Monetary Fund, which makes the economic environment difficult.

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