Pakistan's inflation drops to single digit for first time in 3 years

Pakistan's inflation dropped to the single-digit range for the first time in 34 months, data released by the Pakistan Bureau of Statistics (PBS) showed on Monday.

Inflation, measured by the Consumer Price Index (CPI), was recorded at 9.6% for August, down from 27.4% in the same month last year.

This decline was primarily driven by a reduction in food inflation and the high-base effect — inflation is measured by comparing the prices of specific items to their costs during the same period in the previous year. If the prices were already high like they were in 2023, then the difference in costs will not be too stark.

The figures are close to the results of a survey Nukta conducted last week, in which analysts and brokerage houses had predicted inflation would clock in around 9.7%.

Food, which carries the highest weight in the inflation basket, saw its inflation rate cool to 2.5%, mainly due to a drop in wheat prices to PKR 1,846 from PKR 2,824 per 20 kg in August 2023. It also eased to 1.5% on a month-on-month basis.

Meanwhile, the housing index declined by 1.4% month-on-month in August due to lower fuel charges adjustment of PKR 2.56 per unit compared to PKR 3.33 per unit in the previous month. Additionally, the Punjab government provided a subsidy of PKR 14 per unit to consumers using 201-500 units per month. The federal government has also delayed the tariff increase for consumers using up to 200 units until September.

The transport index declined by 0.7% month-on-month during August, driven by reductions in petrol and diesel prices. The government reduced petrol and diesel prices by PKR 14.6 and PKR 17.6 per liter, respectively, due to a drop in international prices.

The average inflation during the first two months of fiscal year 2024-25 stood at 10.4%, a significant decrease from the 27.8% recorded during the same period in FY24.

Consequently, Pakistan's central bank is expected to cut the interest rate further in its meeting on September 12.

In the last two monetary policy meetings, the central bank cut the interest rate by a cumulative 2.5%, bringing it down to 19.5% from its peak of 22.0%.