Inflation may accelerate to 15.5%
The finance ministry said that Pakistan being a net importer of energy and food items was affected by the rising international prices. Photo: file
The Ministry of Finance said on Wednesday that the inflation rate in June could accelerate and reach 15.5%, which would be the highest in the past 12 and a half years, reflecting the adverse impact of increase in government-administered fuel and energy prices.
The year-on-year inflation is expected to accelerate in June and may remain within the range of 14.5% to 15.5%, according to the monthly Economic Outlook released by the finance ministry.
Last time the inflation rate had been recorded at 15.5% in December 2010. There is a possibility that the pace of hike in prices may even be higher than the finance ministry’s forecast that came two days before the Pakistan Bureau of Statistics (PBS) is scheduled to release the official inflation bulletin.
However, in recent weeks the PBS – the national data collecting agency – has been found under-reporting the inflation reading for some essential food commodities, creating doubts about the credibility of official statistics.
The Ministry of Finance pointed out that the government had withdrawn subsidies on fuel and energy products to control the mounting twin deficit.
The coalition government has increased petrol prices to Rs234 per litre, up from Rs150 per litre. There are also chances of further increase in prices from July.
The finance ministry said that the recent rise in international commodity prices, especially energy and food, would also be translated into domestic prices.
The global economy is confronting a slower growth and high inflationary pressures due to the Russia-Ukraine conflict and subsequent supply chain disruptions.
The US central bank – Federal Reserve – has raised its benchmark interest rate by 0.75% in its most aggressive move since 1994 due to the persistently high inflation. Global commodity prices, however, showed a mixed trend in May 2022.
The finance ministry added that the inflationary pressure may ease once the international commodity prices started to decline
and stabilise.
It said that the year-on-year inflation had been on a rising trend since September 2021. This acceleration is expected to continue in June 2022 and may intensify due to a steep increase in energy prices.
Supply constraints and soaring global commodity prices have also inflated the domestic prices.
An uncertain geopolitical situation due to the Russia-Ukraine conflict has exacerbated the uncertainty and intensified the supply disruptions as observed through the skyrocketing international commodity prices. Both countries have a significant export share in world trade, especially in agriculture and energy products.
The ministry said that Pakistan being a net importer of energy and food items was also affected by the rising international prices.
Money supply was increasing in the market, which was also contributing to the higher inflation.
During the period July 1 to June 3, the money supply (M2) recorded a growth of 8.4% as Rs2.05 trillion was pumped into the market. Net Domestic Assets (NDA) of the banking sector increased by Rs3.8 trillion in the current fiscal year as compared to Rs1 trillion last year.
The government borrowed Rs2.5 trillion for budgetary support against borrowing of Rs868.4 billion last year.
Commenting on the external sector, the finance ministry said that after plummeting in May, exports were expected to remain high in June 2022 as compared to the
previous month.
Due to the government’s measure to curb non-essential imports, “it is expected that the trade balance will improve in June 2022,” it added.
On the basis of a continued declining trend in imports on account of measures taken by the government, it was expected that improvement would be observed in the trade balance in June 2022 compared to the one observed in May 2022, said
the ministry.
Workers’ remittances declined in May 2022 due to the post-Eid factor. In June 2022, however, the remittances are expected to rebound.
It projected a current account deficit of around $1 billion in June, which would take the total deficit to $16.2 billion for fiscal year 2021-22. The previous Pakistan Tehreek-e-Insaf (PTI) government had set the deficit target at a mere
$2.3 billion.
The current account deficit widened due to the constantly growing imports of energy and non-energy commodities, along with the rising trend in global prices of oil, Covid-19 vaccines, food and metals, according to the finance ministry.
In the July-May period, the foreign direct investment declined 5% to just $1.6 billion, which reflected the poor investment climate
in Pakistan.
However, the Ministry of Finance seems to be oblivious of what is happening in the Federal Board of Revenue (FBR).
In its report, the ministry said that due to the measures to restrict imports in an effort to relieve the external sector pressures, it seemed difficult that the FBR would achieve the tax collection target of Rs6 trillion in the outgoing fiscal year.
However, the FBR crossed the tax collection target of Rs6 trillion on June 28 and is poised to head towards its revised annual target of Rs6.1 trillion.
Published in The Express Tribune, June 30th, 2022.
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