Finance ministry expects inflation to fall further to 9.5-10.5% in August

Pakistan’s headline inflation is projected to decline and range between 9.5-10.5% in August 2024, easing further in the coming months, the Finance Division said on Friday.

“On the account of stability in economic indicators, inflation is expected to remain within the range of 9.5-10.5% in August and further decline to 9-10% in September 2024,” the Ministry of Finance said in its ‘Monthly Economic Update and Outlook’.

Pakistan’s headline inflation was recorded at 11.1% year-on-year in July 2024, down from 12.6% in June 2024. This marked the lowest CPI figure since November 2021, when it stood at 11.5%, according to data from the Pakistan Bureau of Statistics (PBS).

Inflation in Pakistan is a major issue for policymakers who are looking to balance burgeoning official books with higher taxation.

The country’s central bank has moved twice on the key policy rate, bringing it down to 19.5% in the last monetary policy announcement, but many analysts have said that the needle is likely to lower in the next meeting scheduled to take place on September 12.

Meanwhile, the Ministry of Finance in its report noted that external indicators including exports, imports and worker’s remittances are following an upward trend.

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“For the outlook, it is expected that exports will remain within the range of $2.5-3.2 billion, imports $4.5-5.0 billion and remittances $2.6-3.3 billion in August 2024,” it said.

The report said the stable outlook of external sector “hinges upon stable exchange rate, revived domestic economic activities, better agriculture output, low domestic and global commodity prices and improved foreign demand”.

On the industrial, the Ministry of Finance in its report projected the Large Scale Manufacturing (LSM) sector to sustain positive growth trajectory in the ongoing FY2025, “on the back of improved external demand, stable exchange rate, receding inflation and easing of monetary policy”.

“For agriculture outlook, kharif 2024 production is dependent on the crops specific weather pattern, which will play critical role in crop yield,” it said.

The report was of the view that the recent and ongoing rainfall spells can have positive and negative impact on rice, sugarcane, cotton, fodder and vegetables, if the rains did not swept away the farmlands.