Inflation reading clocks in at 8.4% in July

Consumer Price Index (CPI)-based inflation was recorded at 8.4% on a year-on-year basis in July 2021, compared to 9.7% in June 2021 and 9.3% in July 2020, according to data released by the Pakistan Bureau of Statistics (PBS) on Monday.

According to the monthly review of price indices, on a month-on-month basis, CPI increased by 1.3% in July 2021 compared to a decrease of 0.4% in the previous month and an increase of 2.5% in July 2020.

The slowdown in CPI inflation comes as a sigh of relief for many as it has remained a thorny issue for the Pakistan Tehreek-e-Insaf (PTI) government, which is facing a number of issues at the economic front including rising commodity prices in international markets, and a widening current account deficit amid rise in import bill.

The inflation reading comes days after the central bank announced to maintain the discount rate at 7%.

Encouraged by 'positive developments', SBP keeps interest rate unchanged at 7%

In its statement last week, the SBP said that it expected inflation to moderate to 7-9% this fiscal year.

"In addition, consumer and business confidence have risen to multi-year highs and inflation expectations have fallen," the SBP said in its monetary policy statement last month. "As a result of these positive developments, growth is projected to rise from 3.9% in FY21 to 4-5% this year, and average inflation to moderate to 7-9% this year from its recent higher out-turns."

Meanwhile, CPI inflation in rural areas was recorded at 8.0% on a year-on-year basis in July 2021 as compared to an increase of 9.7% in the previous month and 11.6% in July 2020. On a month-on-month basis, it stood at 1.4% in July 2021 as compared to a decrease of 0.06% in the previous month and an increase of 3% in July 2020.

Inflation: a ticking time bomb

The Sensitive Price Index (SPI) increased by 16.2% year-on-year in July 2021 as compared to an increase of 17.6% a month earlier and an increase of 13.7% in July 2020. The Wholesale Price Index (WPI) increased by 17.3% year-on-year in July 2021 compared to an increase of 20.9% a month earlier and an increase of 3.2% in July 2020.