The consumer price index (CPI) for May 2024 registered at 11.8% year-on-year (YoY), a significant decrease from 17.3% in April 2024 and a sharp decline from 38.0% in May 2023, according to the latest data from the Pakistan Bureau of Statistics (PBS). This figure came in lower than the expectations of MG Research and the Finance Ministry’s forecast.
On a monthly basis, the CPI fell by 3.2% in May 2024, compared to a slight decrease of 0.4% in April 2024 and an increase of 1.6% in May 2023. The May 2024 figures mark the largest monthly decline in 47 years and the second-largest in history, driven primarily by a substantial reduction in food prices. The food index dropped by 7.83% from the previous month and by 0.17% compared to May last year, largely due to a 20.10% decline in perishable food items.
GOVERNMENT MEASURES AND SECTORAL TRENDS
A report from the Finance Ministry attributed the slowdown in inflation to improved availability of perishable and staple food items, such as wheat, aimed at supporting the marginalized sections of society. Transport costs also saw a decrease of 1.63% compared to April 2024, although they rose by 10.41% compared to May 2023.
CORE INFLATION
Core inflation, which excludes food and energy prices, rose by 14.2% YoY in May 2024, down from 15.6% in the previous month and 22.7% in May 2023. On a monthly basis, core CPI increased by 0.4% in May 2024, compared to an increase of 2.1% in April 2024 and 1.7% in May 2023.
INFLATION METRICS SUMMARY:
CONSUMER PRICE INDEX (CPI)
- CPI MoM (Month-over-Month)
- May-24: -3.2%
- Apr-24: -0.4%
- May-23: 1.6%
- 11MFY24: 1.1%
- 11MFY23: 2.4%
Interpretation: The CPI MoM indicates the change in consumer prices compared to the previous month. For May 2024, there was a significant decrease of 3.2%, indicating deflation on a monthly basis. Compared to April 2024, which saw a slight decrease of 0.4%, May’s decrease is much more substantial. In May 2023, there was an increase of 1.6%. Over the first 11 months of FY24, the CPI increased by 1.1%, lower than the 2.4% increase over the same period in FY23.
- CPI YoY (Year-over-Year)
- May-24: 11.8%
- Apr-24: 17.3%
- May-23: 38.0%
- 11MFY24: 24.9%
- 11MFY23: 29.0%
Interpretation: The CPI YoY measures the change in consumer prices compared to the same month the previous year. For May 2024, prices were 11.8% higher than in May 2023, indicating a significant decrease from April 2024’s 17.3%. In May 2023, prices were 38.0% higher than in May 2022, showing a substantial inflation rate. The average YoY increase over the first 11 months of FY24 was 24.9%, down from 29.0% in the same period for FY23.
CORE CONSUMER PRICE INDEX (CORE CPI)
- Core CPI MoM
- May-24: 0.4%
- Apr-24: 2.1%
- May-23: 1.7%
- 11MFY24: 1.1%
- 11MFY23: 1.7%
Interpretation: The Core CPI MoM excludes volatile items like food and energy. For May 2024, it increased by 0.4%, down from April 2024’s 2.1%. In May 2023, it had increased by 1.7%. The 11-month average for FY24 was 1.1%, compared to 1.7% in the same period for FY23, indicating a moderation in core inflation.
- Core CPI YoY
- May-24: 14.2%
- Apr-24: 15.6%
- May-23: 22.7%
- 11MFY24: 19.3%
- 11MFY23: 17.5%
Interpretation: The Core CPI YoY for May 2024 shows a 14.2% increase compared to May 2023, down from 15.6% in April 2024. In May 2023, core prices were 22.7% higher than in May 2022. The 11-month average YoY increase for FY24 was 19.3%, higher than the 17.5% increase in the same period for FY23, indicating persistent underlying inflation pressures.
SUMMARY
- May 2024 saw a significant monthly deflation in overall CPI, while the annual inflation rate has decreased compared to previous months and the previous year.
- Core CPI shows a more stable inflation trend but still indicates significant underlying inflation, though with some moderation compared to the previous year.
The overall trend from these metrics suggests a cooling of inflationary pressures compared to the previous year, but with persistent core inflation remaining a concern.
REAL INTEREST RATES AND MONETARY POLICY
With the CPI-based inflation rate at 11.8% and the policy rate at 22.0%, the real interest rate now stands at 10.2%. The State Bank of Pakistan (SBP), which has maintained interest rates at a record high of 22% since June last year, is scheduled to review monetary policy on June 10. Market analysts expect the SBP to cut its policy rate by 100 basis points (bps), the first reduction in almost four years, following an aggressive campaign against inflation.
INFLATION OUTLOOK
Projections indicate that if consumer prices rise by an average of 0.5% monthly, annual inflation could drop to approximately 3.4% by the end of December 2024. With a monthly increase of 0.95%, reflecting the last 12-month average, annual inflation could fall to around 6.6% by year-end.
