Pakistan’s inflation eases to 3% in August, beating forecasts

Pakistan’s consumer price inflation cooled more than expected in August, surprising analysts who had projected a more modest decline.

The Consumer Price Index (CPI) rose 3.0% year-on-year, down from 4.1% in July and 9.6% in August 2024, according to official data released Monday.

On a month-to-month basis, CPI fell by 0.6%, reversing a 2.9% increase in July and the 0.4% uptick recorded in the same month last year.

Urban inflation followed a similar trend, rising 3.4% year-on-year in August, compared to 4.4% in July and 11.7% in August 2024.

Rural inflation also eased, registering a 2.4% year-on-year increase, down from 3.5% in July and 6.7% a year earlier.

“This was not on our radar,” said an analyst. “We expected inflation to moderate, but a drop this sharp suggests a stronger-than-anticipated base effect and more stability in food prices than previously assumed.”

The moderation comes amid projections that inflation would settle at 3.9% year-on-year in August, down from 4.07% in July. Analysts had expected a monthly increase of 0.2%, driven by higher costs in food, education, and recreation.

The food index was forecast to rise by 0.5% month-on-month, with price hikes in tomatoes, onions, chicken, and wheat leading the surge. Education costs were expected to climb 2% due to increased school fees.

Despite the current relief, economists warn that recent flooding in Punjab province could reverse the trend. The region, a key supplier of the country’s food, has suffered significant crop damage.

“If crop losses are severe, we could see a spike in food inflation and a widening trade deficit as imports rise to fill the gap,” the analyst said. “This could also dampen GDP growth in the coming quarters.”

The government has yet to release a formal damage assessment, but officials are closely monitoring the situation as inflation remains a key concern heading into the final quarter of the year.