Ministry of Finance expects inflation to fall further to 13.5-14.5% in May

Pakistan’s headline inflation is projected to hover around 13.5-14.5% in May 2024, and will ease further in the coming months, the Finance Division said on Wednesday.

In its ‘Monthly Economic Update and Outlook’, the Ministry of Finance said the inflation outlook for May 2024 continues downward, attributed to elevated inflation levels previous year and improvements in domestic supply chain of perishable items, staple food like wheat and transportation costs.

“Inflation is anticipated to remain within the range 13.5-14.5% for May 2024,” read the report. “Nonetheless, there are prospects for a gradual easing, with expectations of a decrease to 12.5-13.5% by June 2024.”

As per the monthly outlook, the government’s commitment to curbing inflation through stringent administrative measures paints a promising picture for the inflation outlook.

“A key pillar in this strategy is the bolstered availability of food items, which is crucial for taming inflationary pressures. By consistently managing supply and demand, the government stabilizes prices and reduces market volatility.

Moreover, in May 2024, petroleum product prices dropped twice, positively impacting the CPI for the month.

“The SPI has recorded a decline for the fourth consecutive week which augurs well for CPI outlook,” it noted.

In April, Pakistan’s headline inflation clocked in at 17.3% on a year-on-year basis in April, lower than the reading in March when it stood at 20.7%.

Meanwhile, the Ministry of Finance in its report stated that during the ongoing fiscal, the economic indicators demonstrate strengthening of stability in the real, fiscal and external sectors.

“GDP growth is elevating while inflation rates are on a decline with a positive primary balance, reflecting the effectiveness of recent fiscal consolidation efforts,” it noted.

As per the Ministry of Finance report, agriculture has been a major contributor to this fiscal year’s economic upswing, attributed to government-led initiatives that enhanced input supply and credit disbursements.

On the other hand, the Large Scale Manufacturing (LSM) sector experienced a slight contraction but has shown improvement compared to the previous year.

The report said that fiscal measures have boosted both tax and non-tax revenues while improvement in the current account balance highlight a healthier external sector driven by better trade balances and increased foreign direct investment.

“The economic outlook is promising as industrial activities are gradually improving, inflation is on a downward trajectory and the external sector is stable. Going forward, the economy will gain momentum in the coming months of this fiscal year,” it said.

Inflation has become a key figure for Pakistan’s policymakers who are fighting multiple economic battles including pressure on its external account and low foreign exchange reserves. The International Monetary Fund (IMF)’s $3-billion Stand-By Arrangement (SBA), which concluded with the Executive Board approval, offered some relief to the debt-ridden economy, but Islamabad is now looking at a longer, larger programme with the lender.