Low inflation sparks rate cut talks

Dips to 7-month low amid speculations of an emergency SBP MPC meeting

KARACHI:

The inflation rate decelerated to a seven-month low of 1.39% due to reduced food prices in the week ending May 9, 2024, continuing a downward trend for the fourth consecutive week in Pakistan, according to the Pakistan Bureau of Statistics (PBS).

The consistent slowdown in short-term inflation rates and related trends suggest that the monthly benchmark inflation, measured through CPI (consumer price index), could decrease to an over two-year low in the range of 13-15% in May. This prompts a strong call to the central bank to aggressively cut its key policy rate (interest rate) from the record high of 22% at its next meeting scheduled for June 10, 2024, or possibly even before through an emergency meeting.

Speculations have emerged regarding the possibility of an emergency meeting being called by the central bank to cut the rate. However, the bank neither confirmed nor denied these reports in response to queries sent by The Express Tribune a couple of days ago.

The bank maintained the interest rate at the record high of 22% in its last monetary policy meeting held in late April 2024, despite inflation falling below the interest rate for the first time in years, registering at 21.7% in March. This indicated that the real interest rate had turned positive at 1.3% in March.

Based on PBS’s latest weekly inflation data, FRIM Venture stated on a social media platform that it anticipates inflation to decrease to 13% year-on-year in May 2024. Topline Securities, CEO, Muhammad Sohail mentioned that inflation in Pakistan is expected to decrease significantly from 38% in May 2023 to around 15% in May 2024, citing improved local crops and expected agriculture growth above 5%, which would be an 18-year high.

The central bank has maintained the rate at its previous seven meetings held over the past 10 months between July 2023 and April 2024.

According to PBS and Arif Habib Limited, the short-term inflation rate measured through weekly SPI (sensitive price indicator) slowed down to a 23-month (100-week) low of 22.32% in the observed week compared to the same week of the previous year. However, short-term inflation on a year-on-year basis remained elevated in double digits.

During the week, out of 51 items, prices of 12 (23.53%) items increased, 13 (25.49%) items decreased, and 26 (50.98%) items remained unchanged compared to the previous week. Notable decreases were observed in the prices of onions, chicken, wheat flour, and LPG, while increases were noted in the prices of tomatoes, eggs, potatoes, and others.

The year-on-year trend depicts significant increases in gas charges for Q1, onions, tomatoes, and other goods.

Published in The Express Tribune, May 11^th, 2024.

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