Pakistan is grappling with a surge in inflation as the Consumer Price Index (CPI) based inflation rate reached 31.4% year-on-year, marking an increase from 27.4% in August, according to data from the Pakistan Bureau of Statistics (PBS). This rise is attributed to the escalating energy costs, leading to a substantial month-on-month increase of 2% for September, compared to a 1.7% rise in August.
The inflationary pressure comes as the government raised fuel prices to meet conditions set by the International Monetary Fund (IMF) under an ongoing $3 billion bailout program. The economic landscape in Pakistan is undergoing challenges in the path to recovery under a caretaker government following the IMF loan approval in July. While the loan averted a sovereign debt default, the associated conditions have complicated efforts to curb inflation.
During the first quarter of the current fiscal year, inflation averaged 29%, with a quarterly average inflation rate of 29.04%, compared to 25.11% in the same period of the previous fiscal year.
Breaking down the data, the CPI inflation in urban areas rose to 29.7% year-on-year in September 2023, up from 25.0% in the previous month and 21.2% in September 2022. In rural areas, the year-on-year CPI inflation increased to 33.9% in September 2023, compared to 30.9% in the previous month and 26.1% in September 2022.
Analysts had anticipated this increase, with market expectations in line with the reported figures. The Ministry of Finance anticipates inflation to remain high in the coming months, hovering around 29-31%, primarily due to upward adjustments in energy tariffs and significant fuel price increases.
Despite recent cuts in petrol and diesel prices, inflation has remained in double digits since November 2021, surpassing the targeted rate of 21% for the current fiscal year. The inflationary environment, coupled with rising political tensions ahead of the scheduled national election in November, has led to sporadic protests as many Pakistanis express their challenges in meeting basic needs.
Analysts believe that while inflation has peaked for the current fiscal year, a subsequent decline is expected. The higher inflation reading is attributed to a low base effect, and going forward, analysts anticipate a gradual easing of inflation to around 26-27%. Importantly, they suggest that higher inflation statistics should not significantly impact monetary policy.
