Inflation in Pakistan Surges to 31.4% Year-on-Year in September

Pakistan is grappling with a surge in inflation, which has risen to 31.4% year-on-year in September, up from 27.4% in August, according to data from the Pakistan Bureau of Statistics (PBS). This marks the first increase in four months, primarily driven by the government’s decision to raise fuel prices to meet the conditions of the International Monetary Fund’s (IMF) ongoing $3 billion bailout programme.

The country is currently on a challenging path towards economic recovery under a caretaker government. In July, a $3 billion loan programme approved by the IMF helped Pakistan avert a sovereign debt default. However, the conditions attached to the loan have complicated efforts to control inflation.

Inflation rose by 2% month-on-month in September, compared to an increase of 1.7% in August. During the first quarter of the current fiscal year, inflation averaged 29%. The quarterly average inflation for 1QFY24 hit 29.04%, compared to 25.11% in 1QFY23.

The PBS data showed that the CPI inflation in urban areas increased to 29.7% year-on-year in September 2023, up from 25.0% in the previous month and 21.2% in September 2022. On a month-on-month basis, it increased to 1.7% in September 2023, compared to an increase of 1.6% in the previous month and a decrease of 2.1% in September 2022.

In rural areas, CPI inflation increased to 33.9% year-on-year in September 2023, up from 30.9% in the previous month and 26.1% in September 2022. On a month-on-month basis, it increased to 2.5% in September 2023, compared to an increase of 1.9% in the previous month and an increase of 0.2% in September 2022.

According to a report by Topline Securities, this inflation reading is in line with market expectations. JS Global, in its report, projected the September 2023 CPI reading at 30.6%. The brokerage house noted that a one-time power tariff adjustment of -65% month-on-month (MoM) in September 2022 led to a 115 basis point (bp) MoM dip in Sep-2022 CPI, declining the base for this month.

Meanwhile, brokerage house Arif Habib Limited (AHL), in its report, expected the inflation reading to be 31.1%. “Looking forward, the primary factors posing risks to overall inflation include the potential for sustained pressure on both food and energy prices, alongside an imminent adjustment in gas tariffs,” said AHL.

On Friday, the Ministry of Finance said in its monthly report that it anticipated inflation remaining high in the coming month, hovering around 29-31% due to an upward adjustment in energy tariffs and a major increase in fuel prices. The report added that inflation was, however, expected to ease, especially from the second half of the current fiscal year that starts on Jan. 1.

On Saturday, Pakistan cut petrol and diesel prices from a record high, after two consecutive hikes. The finance ministry cited international prices of petroleum products and the improvement in the exchange rate, following the clampdown on unregulated FX trade.

Inflation has been elevated, hovering in double digits, since November 2021. The South Asian country targeted inflation at 21% for the current fiscal year, but it averaged 29% during the first quarter.

Worsening economic conditions, along with rising political tensions in the run-up to a national election scheduled for November, triggered sporadic protests in September, with many Pakistanis saying they are struggling to make ends meet.

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