Pakistan’s headline inflation reading slows to 23.1% in February

Pakistan’s headline inflation clocked in at 23.1% on a year-on-year basis in February, Pakistan Bureau of Statistics (PBS) data showed on Friday, much lower than the reading in January when it stood at 28.3%. On a month-on-month basis, the reading remained unchanged.

“This is the lowest inflation reading since June 2022,” said Arif Habib Limited (AHL) in a note.

This takes July-February average inflation to 27.96% compared to 26.19% in the same period of the previous year.

The inflation reading is lower than government’s expectation, and adds to the wider impression that the State Bank of Pakistan (SBP) would start monetary easing in the upcoming meetings. The next Monetary Policy Committee of the SBP is scheduled to take place on March 18.

On Thursday, the Ministry of Finance, in its ‘Monthly Economic Update and Outlook’ report, had projected CPI-based inflation in Pakistan to hover around 24.5-25.5% in February 2024.

The finance ministry, however, anticipated inflation to further ease to 23.5-24.5% in March 2024.

It said the outlook for the upcoming month points towards a downward trajectory owing to better crops and a smooth supply of commodities. “Similarly, favorable input situations are set to bolster Rabi crop production,” read the report.

AHL, in a report earlier this week, had said inflation is expected to decline and could clock in at 23.5% in February.

“The projected YoY headline inflation rate for February 2024 is expected to be 23.5%, reflecting a decline from the previous month, January 2024,” it said.

“As a result, it is expected that the average CPI for 7MFY24 will be ~28.1% YoY, contrasting with the 26.2% YoY rate recorded in 7MFY23.”

Looking forward, the brokerage house anticipated headline inflation to decrease primarily due to the significant base effect.

Urban, rural inflation

The PBS said CPI inflation urban increased to 24.9% on year-on-year basis in February 2024 as compared to an increase of 30.2% in the previous month and 28.8% in February 2023.

On a month-on-month basis, it increased to 0.2% in February 2024 as compared to an increase of 1.8% in the previous month and an increase of 4.5% in February 2023.

CPI inflation rural stood at 20.5% on year-on-year basis in February 2024 as compared to an increase of 25.7% in the previous month and 35.6% in February 2023.

On month-on-month basis, decreased to 0.3% in February 2024 as compared to an increase of 1.9% in the previous month and an increase of 4.0% in February 2023.

SBP expectations

The SBP in its last Monetary Policy Committee (MPC) maintained status quo and kept the key policy rate at 22%.

Back then, the MPC noted that both food and core inflation had been moderating for the past few months.

“This trend reflects the positive impact of tight monetary policy stance duly supported by ongoing fiscal consolidation, lower global commodity prices, and improved domestic crop output and supplies.

“However, the positive impact of these developments is being diluted by sizable adjustments in administered energy prices, especially from November 2023 onwards,” said the MPC in its statement.

The committee noted that the large adjustments have significantly impacted the inflation outturns and its near-term outlook.

“Incorporating the inflation in H1-FY24, expected significant decline in the second half, and the evolving risks, the MPC expects average inflation to fall in the range of 23-25% in FY24 and continue to trend down noticeably in FY25,” it said.