Islamabad, 1 July 2024, (GNP): According to the Pakistan Bureau of Statistics (PBS), headline inflation accelerated at the start of the new fiscal year, reaching 12.6% year-on-year in June, up from 11.8% in May, as reported by the country’s federal statistics agency on Monday.
This increase aligns with both market and government expectations. The PBS further indicated that Consumer Price Index (CPI)-based inflation rose by 0.5% on a month-on-month basis in June.
In May, CPI-based inflation rose by 11.8% from a year earlier, marking the lowest reading in 30 months and falling below the finance ministry’s expectations. The country had grappled with inflation rates exceeding 20% since May 2022, with a peak of 38% in May last year amidst reforms tied to an International Monetary Fund (IMF) bailout program. However, inflation has moderated since then.
Topline Securities, a brokerage firm, noted that this reading aligned with their forecasts, thus not surprising them. This CPI figure brings the average inflation for fiscal year 2023-24 to 23.4%, compared to 29.2% in fiscal year 2022-23.
In its Monthly Economic Update and Outlook report, the Ministry of Finance projected a slightly higher inflation rate for June 2024 compared to the previous month, though still lower than the same period last year. The ministry attributed this increase to higher prices of perishable items driven by Eid ul Adha. It emphasized that the government is actively managing supply and demand to stabilize prices, reduce market volatility, and improve the inflation outlook.
JS Global Research forecasted CPI inflation to hover around 12.5% year-on-year for June, with an average of 23.8% for fiscal year 2023-24, continuing the slowdown observed since May (11.8%). This contrasts sharply with 17.3% in April and a significant drop from 29.4% in June 2023.
According to JS Global, June is expected to see a 37 basis points month-on-month decrease in food inflation, following an 8% month-on-month drop in April. This would translate to a year-on-year food inflation rate of just 0.5% in June, a marked improvement from 39% in June 2023.
AKD Securities Limited estimated a 12.55% year-on-year increase in inflation for June, up from 11.76% in the previous month. The AKD report noted a likely 0.45% month-on-month rise, attributed to a slight rebound in vegetable prices due to ongoing festivities.
Both brokerage firms cautioned that near-term CPI readings could be influenced by recent inflationary adjustments announced in the federal budget, particularly impacting food and fuel indices which showed slowing trends in May.
“Additionally, any further rebounds in essential commodity prices driven by a pullback in crude oil in the wake of global monetary easing, alongside moderate weakness in the domestic currency, if any, may keep disinflationary prospects in check,” according to the AKD report.
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On Friday, June 28, the parliament approved the government’s tax-heavy finance bill for the current fiscal year amid an anticipated annual inflation rate of up to 13.5% by June 2024. The bill was passed ahead of forthcoming negotiations with the IMF for a loan of $6 billion to $8 billion aimed at preventing a debt default for Pakistan, which has the slowest-growing economy in South Asia.
According to a report from the finance ministry, annual consumer price inflation for June 2024 is projected to range between 12.5% and 13.5%, up from 11.8% in May. The government has stated it is implementing various administrative, policy, and relief measures to mitigate inflationary pressures.
The increase in the tax target includes a 48% rise in direct taxes and a 35% hike in indirect taxes compared to revised estimates for the current year. Non-tax revenue, including petroleum levies, is expected to rise by 64%.
Opposition parties, primarily led by parliamentarians aligned with jailed former prime minister Imran Khan, have strongly opposed the budget, arguing that it will significantly exacerbate inflationary pressures.
Pakistan has set a target to sharply reduce its fiscal deficit for the upcoming financial year to 5.9% of GDP, down from an upwardly revised estimate of 7.4% for the current year.
