EDITORIAL: The July Consumer Price Index (CPI) rose to 4.1 percent against 3.2 percent in June, 3.5 percent in May with at the lowest level for decades, registering at 0.3 percent in April 2025. The calculation or average of 2024-25 is 11.09 percent projected to decline to 4.07 percent in the current fiscal year — which is not in synch with either the projection by the Monetary Policy Committee (MPC) nor that of the International Monetary Fund (IMF).
The July CPI figure, the first month of fiscal year 2025-26, inches closer to the annual projection repeatedly made by the MPC since March 2025: that inflation would be within the target range of 5 to 7 percent though the Monetary Policy Statements since then cautioned that the outlook is “susceptible to risks emanating mainly from volatility in food prices, timing, and magnitude of energy price adjustments, additional revenue measures, protectionist policies in major economies and uncertain outlook of global commodity prices.” In this context, it is relevant to note that in December 2024 the CPI was calculated at 4.1 percent and the discount rate announced on 16 December by the MPC was 13 percent — a rate reduced to 12 percent on 27 January 2025, and to 11 percent on 5 May 2025. In other words, given the CPI projected rise, the IMF is likely to be reluctant to approve a reduction in the discount rate in the scheduled meeting on 15 September and, in the event that the CPI further rises, it is unlikely that the discount rate would be reduced in the 27 October and 15 December scheduled MPC meetings. This would make the budgetary projections of a decline in the mark-up payment component of current expenditure, accounting for 50 percent, unlikely — a decline that the Federal Finance Minister noted in the finance committee meetings debating the budget as highly likely.
The IMF in the first review documents uploaded on its website in May 2025 noted that consumer prices (period average) rose by 7.7 percent in 2024-25, lower than the 11.07 percent calculated by the PBS and is projected to rise by 6.5 percent in the current year (within the range specified by the MPC). The Fund notes that “Fiscal Year 25 inflation is also revised down, although it is projected to increase notably in the coming months due to adverse base effects, with a durable return to the target range (5 to 7 percent) expected during FY26 provided policy remains appropriately tight” — a statement that supports the contention that the policy rate is unlikely to be further reduced in months to come. It is relevant to note that any decision that violates an agreement with the Fund would lead to suspension of not only the next tranche but also to the three friendly countries refusing to roll over around 16 billion dollars, which would raise the spectre of an imminent default.
The PBS noted that sugar price rose by nearly 30 percent last month, the highest in the food group, and sadly this is squarely attributable to flawed policies of the federal government that, like its predecessors, failed to deal with the inaccurate stock data provided by the sugar millers (members of the politically powerful Pakistan Sugar Millers Association) with representation in the Sugar Advisory Board. The PSMA’s objective is to be allowed to export the commodity, which during years when the international price is lower than the domestic price has led to export subsidies at the cost of the taxpayers.
The increase in non-food prices, including gas charges (22.91 percent), electricity charges (14.18 percent), transport services (4.77 percent due to the rise in petroleum levy) and motor fuel (4.45 percent), was due to the administrative decisions taken by the government as part of the agreed conditions with the IMF.
To conclude, as inflation rises, unemployment at a high of 22 percent and wages of the 93 percent of the country’s entire labour force remaining constant for the past five to six years (only the 7 percent who receive a salary from the government at the taxpayers’ expense have witnessed a pay raise above inflation), poverty levels have reached an alarming 44.2 percent as per the World Bank. There is a need for the government to acknowledge these disturbing statistics and take appropriate mitigating measures to forestall any civil unrest — a risk highlighted by the Fund time and again.
Copyright Business Recorder, 2025
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