Government’s Aggressive Measures Signal Positive Inflation Outlook
Pakistan’s headline inflation is expected to fall within the range of 13.5-14.5% in May 2024, with further easing anticipated in the coming months, according to the Finance Division’s latest report.
In its ‘Monthly Economic Update and Outlook’, the Ministry of Finance cited a decrease in inflation for May 2024, attributing this to last year’s high inflation levels and improvements in the domestic supply chain of perishable items, staple foods like wheat, and transportation costs.
“Inflation is projected to remain between 13.5-14.5% for May 2024,” the report stated. “However, a gradual reduction is expected, with rates potentially dropping to 12.5-13.5% by June 2024.”
The report highlights the government’s dedication to combating inflation through rigorous administrative measures, creating a favorable inflation forecast.
“A significant part of this strategy involves enhancing the availability of food items, which is essential for reducing inflationary pressures. By consistently managing supply and demand, the government stabilizes prices and reduces market volatility.”
Additionally, May 2024 saw two reductions in petroleum product prices, positively impacting the Consumer Price Index (CPI) for the month.
“The SPI has declined for the fourth consecutive week, which bodes well for the CPI outlook,” the report noted.
In April, Pakistan’s headline inflation was recorded at 17.3% year-on-year, down from 20.7% in March.
The Finance Ministry’s report also indicated that during the ongoing fiscal year, economic indicators show increased stability in real, fiscal, and external sectors.
“GDP growth is rising, inflation rates are falling, and a positive primary balance reflects the success of recent fiscal consolidation efforts,” the report observed.
The report credits government-led initiatives in agriculture for contributing significantly to this fiscal year’s economic growth, with enhancements in input supply and credit disbursements.
Conversely, the Large Scale Manufacturing (LSM) sector experienced a slight contraction but showed improvement compared to the previous year.
Fiscal measures have increased both tax and non-tax revenues, and improvements in the current account balance highlight a healthier external sector driven by better trade balances and increased foreign direct investment.
“The economic outlook is optimistic with industrial activities improving, inflation decreasing, and a stable external sector. The economy is expected to gain momentum in the coming months of this fiscal year,” the report concluded.
Inflation remains a critical concern for Pakistan’s policymakers, who are tackling multiple economic challenges, including pressure on the external account and low foreign exchange reserves. The International Monetary Fund (IMF)’s $3-billion Stand-By Arrangement (SBA), approved by the Executive Board, provided some relief to the debt-stricken economy, but Islamabad is now seeking a longer and larger program with the lender.
