Pakistan's Inflation Rate Hits 7.2% in October 2024

In recent months, Pakistan has witnessed a significant shift in its inflation landscape. The Consumer Price Index (CPI) based inflation rate for October 2024 has been reported at 7.2%, a rise from 6.9% in September. This figure, however, is a stark contrast to the alarming 26.8% inflation recorded in October 2023. The data, released by the Pakistan Bureau of Statistics (PBS), indicates a continued trend of easing inflation, which had previously reached a historic high of 38% last year.

The latest CPI data not only surpassed government and market forecasts, which anticipated a rate of around 6.8%, but also reflects a broader economic recovery. The average inflation for the first four months of the fiscal year 2025 stands at 8.7%, a significant drop from the 28.5% recorded during the same period in the previous fiscal year. This decline is encouraging for both consumers and policymakers, as it suggests that the economy is stabilizing.

On a month-to-month basis, the CPI saw an increase of 1.2% in October, reversing the previous month’s decline of 0.5%. This uptick is also higher than the 1.0% increase noted in October 2023. Core inflation, which excludes volatile food and energy prices, rose by 9.8% year-on-year in October, slightly lower than the 10.4% increase seen in September. This indicates that while inflation is easing, there are still underlying pressures that need to be addressed.

The Ministry of Finance has expressed optimism in its monthly economic outlook, projecting that inflation could stabilize between 5.5% and 6.5% in November 2024. This positive outlook is bolstered by expectations of continued fiscal consolidation and economic recovery. Analysts from Topline Securities had previously forecasted a slight increase in inflation for October, estimating it would fall within the range of 6.5% to 7.0% year-on-year.

Despite the recent improvements, inflation remains a significant challenge for Pakistan's economy. The peak inflation rate of 38% in May last year has left a lasting impact, and the current rate of 6.9% in September was the lowest since January 2021. With inflation rates hovering around 6.5% to 7.0%, real interest rates in Pakistan are projected to be between 1,050 to 1,100 basis points above inflation. This substantial gap compared to the historical average of 200-300 basis points may prompt the central bank to consider tightening its monetary policy.

In a recent interview, Finance Minister Muhammad Aurangzeb revealed that the International Monetary Fund (IMF) has revised its inflation forecast for Pakistan down to 9.5% for the current year. This adjustment aligns more closely with Pakistan’s own projections, indicating a consensus on the economic outlook. Additionally, the IMF has lowered its import projections for Pakistan to $57.2 billion for the current fiscal year.

While the rise in CPI-based inflation to 7.2% in October 2024 may seem concerning at first glance, it is essential to recognize the broader context of declining inflation rates compared to the previous year. The government's proactive measures and the anticipated economic recovery could pave the way for a more stable financial environment in the coming months. As the central bank prepares to review its policy rate, the focus will remain on balancing inflation control with economic growth, a task that will require careful navigation in the months ahead.