Inflation in Pakistan drops to single digit after three years, clocks in at 9.6% in August

Pakistan’s headline inflation clocked in at 9.6% on a year-on-year basis in August 2024, lower than the reading in July 2024 when it stood at 11.1%.

The inflation reading was back into single digits after a span of three years, showed Pakistan Bureau of Statistics (PBS) data. Back in October 2021, CPI inflation stood at 9.2%.

On a month-on-month basis, CPI increased to 0.4% in August 2024 as compared to an increase of 2.1% in the previous month and an increase of 1.7% in August 2023.

The reading is also in line with official expectations. The finance ministry had stated that it expects inflation in August to range between 9.5% and 10.5% in the monthly economic outlook released 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’.

The inflation figure comes after the State Bank of Pakistan (SBP) in its last Monetary Policy Committee (MPC) in July cut the key policy rate by 100 basis points, taking it to 19.5%, saying that there are “risks to the inflation outlook from fiscal slippages and ad-hoc decisions related to energy price adjustments”.

Inflation in Pakistan has been a significant and persistent economic challenge, particularly in recent years. In May of last year, the CPI inflation rate hit a record high of 38%. However, it has been on a downward trajectory since then.

Meanwhile, the latest reading was also in line with projections made by a number of brokerage houses.

JS Global expected inflation reading to clock in at 9.3%, “entering the single-digit inflation territory for the first time in three years”.

The brokerage house was of the view “the abating inflation strengthens MPC’s case for continuing the easing cycle in the September meeting with a third consecutive interest rate cut, this time of 150bps, bringing the Policy Rate down to 18%.”

Meanwhile, Arif Habib Limited (AHL), another brokerage house, also projected the interest rate cycle that kicked off in June 2024 to continue, with August inflation reading likely to land around 9.6%.

“By June 2025, we anticipate the policy rate could drop to as low as 14-14.5% from current level of 19.5%, with September 2024 policy likely to see a 100bps rate cut,” it said.

Urban, rural inflation

The PBS said CPI inflation urban clocked in at 11.7% on year-on-year basis in August 2024 as compared to an increase of 13.2% in the previous month and 25.0% in August 2023.

On month-on-month basis, it increased to 0.3% in August 2024 as compared to an increase of 2.0% in the previous month and an increase of 1.6% in August 2023.

CPI inflation rural increased to 6.7% on year-on-year basis in August 2024 as compared to an increase of 8.1% in the previous month and 30.9% in August 2023.

On month-on-month basis, it increased to 0.6% in August 2024 as compared to an increase of 2.2% in the previous month and an increase of 1.9% in August 2023.