Inflation falls to single digit after 34 months

• Drop in prices of non-perishable goods, high-base effect contribute to the decline
• PM credits govt’s economic team for achievement

ISLAMABAD: After 34 months, the country’s consumer inflation has plummeted to single digits, owing to a decline in non-perishable goods prices and a large base effect from the previous year.

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Inflation, as measured by the Consumer Price Index (CPI), fell to 9.6 percent in August from 27.4 percent the previous year, according to official figures released on Monday.

The slowing is mostly due to lower food prices in both urban and rural regions. Wheat, wheat flour, wheat products, and vegetables such as tomatoes all experienced significant price drops during the month under study.

Last month, the State Bank’s policy rate was slashed by 100 basis points to 19.5 percent as inflationary pressures eased further. It had already been decreased to 20.5 percent from 22 percent after nearly four years.

Former interim minister Younus Dagha stated the SBP’s monetary policy council should cut interest rates to 15-17 percent owing to single-digit inflation.

In India, the policy rate is 6.5 percent, while inflation stayed at 3.5 percent in August. In Bangladesh, the policy rate is 8.5 percent, and inflation is 11.7 percent. The regional comparison also points to a large drop in the SBP policy rate at the next review.

In FY24, annual inflation exceeded its financial objective, reaching a stunning 23.41 percent due to rising costs for electricity, gas, and necessary kitchen products. For fiscal year 24, the targeted aim was 21 percent. The CPI is a basket of products used to estimate headline inflation and services.

The government imposed a sales tax on food goods in the budget, boosting retail prices even further.

Independent experts credit August’s low inflation to last year’s large base, no rise in the discount rate, and global commodity price stability. They claim that the Pakistan Bureau of Statistics (PBS) calculates inflation using last year’s high base. The lower rate did not exclude price increases or decreases in July.

In August, urban inflation was 11.7 percent year on year and 0.3 percent month on month, somewhat lower than 13.2 percent and 2 percent, respectively, in July. Rural inflation fell to 6.7 percent year on year and 0.6 percent month on month, compared to 8.1 percent and 2.2 percent the previous month.

Food, core inflation

Food inflation in August was 4.1 percent in cities and 1.9 percent in the countryside, while non-food inflation was 17.4 percent in cities and 11.9 percent in the countryside. Food inflation fell to a single digit, 9.4 percent, in October 2021. Since then, it has steadily grown, reaching a record high of 48.1 percent in May of last year.

Core inflation, excluding volatile food and energy costs, was 10.2 percent in urban areas and 14.4 percent in rural regions.

In urban areas, the food items whose prices rose month-on-month in August were onions (22.84%), chicken (13.62%), eggs (12.39%), fresh vegetables (12.25%), besan (4.88%), pulse gram (4.55%), gram whole (3.82%), potatoes (2.90%), pulse moong (2.83%), milk fresh (1.27%), milk products (1.20%), vegetable ghee (1.10%), gur (1.04%), meat (0.99%), rice (0.98%), pulse mash (0.85%), condiment

In contrast, fresh fruit prices fell 13.10%, tomatoes 8.09%, wheat flour 3.87%, wheat 3.40%, dessert preparation 0.69%, pulse masoor 0.57%, wheat products 0.38%, and cigarettes 0.37 %.

Non-food prices grew by 168.79 percent for motor vehicle tax, 5.08 percent for stationery, 3.41 percent for hosiery, 2.47 percent for personal goods, 1.85 percent for dopatta, 1.35 percent for medications and medicines, 1.24 percent for readymade clothes, 1.03 percent for plastic items, and 0.88 percent for doctor (MBBS) clinic fees.

‘Hard work of economic team’

Prime Minister Shehbaz Sharif on Monday praised the decreased trend in the country’s inflation rate, expressing his happiness with the development.

“This is due to the efforts of the government’s economic and financial staff. The drop in inflation to 9.6 percent was confirmation of the government’s efforts to maintain a healthy economy, he said in a statement.

The prime minister stated that the administration believes in passing on all of the advantages of such measures to ordinary citizens. He stated that the administration was aware of the people’s sorrow and worked tirelessly to remedy it.

The prime minister stated that the PML-N administration had kept inflation in single digits in 2018. Indirectly criticizing the PTI administration for the country’s terrible economic position, he stated: “Due to anti-state policies of PTI, the country faced the worst economic crisis and thus the people suffered.”

He stated that the people are now receiving the rewards of the government’s sound economic policies. “The target of economic progress cannot be achieved without providing relief to the masses,” he clarified.

Meanwhile, Minister for Information Attaullah Tarar reminded the National Assembly that, according to State Bank statistics released on Monday, inflation in the nation has dropped to a single digit, standing at 9.6% for the first time in three years.

Responding to supplemental questions during the National Assembly’s question-hour session, the minister stated that inflation was just 4 percent during the PML-N administration led by Nawaz Sharif in 2018, but increased to 22 percent under the PTI. “Inflation in a single digit is a proof of success under the leadership of Prime Minister Shehbaz Sharif,” according to him.