Short-term inflation decelerates to 27-month low

The weekly inflation gauge, displayed by the Sensitive Price Indicator (SPI), decelerated to a 27-month low and settled at 16.86% in the week ended August 15, 2024 compared to the same week of last year.

The inflation rate is the lowest since May 19, 2022. It, however, still remains elevated in double digits, signaling a massive room for further slowdown in the coming weeks and months.

According to the Pakistan Bureau of Statistics (PBS), the week-on-week inflation dropped 0.16% in an about-turn from the increase recorded in the previous week.

The slowdown in the pace of inflation suggests that the central bank will potentially cut its key policy rate further, as being speculated by some financial pundits.

The State Bank of Pakistan (SBP) has made two reductions totaling 250 basis points in the policy rate in June and July, pushing the rate to 19.5%. It is expected to further slash it to 15-16% by the end of current fiscal year in June 2025.

SPI comprises 51 essential commodities whose data is collected by the PBS from 50 markets across 17 cities in the country.

During the week under review, out of the 51 items, prices of 19 (37.25%) items increased, rates of 13 (25.50%) items decreased and prices of 19 (37.25%) items remained unchanged compared to the previous week.

The 0.16% week-on-week fall in inflation was led by onion, which recorded a 4.91% price drop to Rs138.97 per kg compared to Rs146.14/kg in the prior week.

It was followed by petrol (super), which fell 3.15% to Rs262.09/litre compared to Rs270.62/litre last week.

Hi-speed diesel price decreased 2.44% to Rs267.26/litre compared to Rs273.94/litre a week earlier. Wheat flour cost 1.83% less at Rs1,851.43 per 20kg bag compared to Rs1,885.86/bag.

Moong pulse (washed) price dipped 1.81% to Rs339.31/kg compared to Rs345.56/kg in the preceding week.

Other commodities registered a decrease of up to 1.57% including chicken, bananas, liquefied petroleum gas, sugar, potatoes and masoor pulse. On the other hand, prices of many goods surged up to 35%, which included tomatoes, eggs, garlic, beef, cooked beef, georgette, gur, curd and mustard oil.

The year-on-year increase of 16.86% in inflation rate was mainly led by Q1 gas charges, which rose 570%, followed by onions, up 125.64%.

Prices of other commodities rose up to 42% including gram pulse, tomatoes, milk powder, garlic, gents' sandal, moong pulse, shirting, beef, salt powder and long cloth.