Inflation slows to 1.5% in Feb

But cost of essential goods continues to rise, cost of borrowing still high

ISLAMABAD:

The overall pace of increase in consumer prices further slowed to 1.5% in February, but daily kitchen items continued to become more expensive at a double-digit rate, indicating the gap between the government's confidence in slowing inflation and the public still feeling the burden.

The fresh inflation reading was announced on the same day the International Monetary Fund (IMF) opened its first review talks under the $7 billion deal with the State Bank of Pakistan (SBP) in Karachi, separately meeting the central bank for discussions outside Islamabad. Another IMF team met with the Ministry of Finance in Islamabad.

Inflation fell to a nearly decade-low level of 1.5% in February, reported the Pakistan Bureau of Statistics (PBS) on Monday.

Following the announcement, Prime Minister Shehbaz Sharif expressed satisfaction over the lowest inflation rate since September 2015, calling it good news that coincided with the completion of one year of his government.

The prime minister said that, due to the dedicated efforts of the government's economic team, economic indicators were improving with each passing day.

Under the SBP Act, maintaining price stability is the responsibility of the central bank. On Monday, the SBP briefed the IMF team on inflation and the macroeconomic outlook.

PM Sharif stated that all institutions were working together to improve the economy and promote business and investment. He noted that the improvement in macroeconomic conditions had begun to benefit the public.

The 1.5% inflation rate means that the central bank's monetary policy rate remains 10.5% higher than the prevailing inflation rate, providing significant room for a cut in the upcoming meeting. However, SBP Governor Jameel Ahmad said last month that inflation could rise again from this month.

The central bank reduced interest rates last month to 12%, a total cut of 10% since the start of this fiscal year. However, the cost of borrowing remains significantly higher than the prevailing inflation rate, indicating the SBP's cautious monetary policy.

The 1.5% inflation rate was far lower than the expectations of the federal government and independent analysts. It was the lowest price increase since September 2015.

Businesses require stimulus through reductions in energy costs, operational expenses, and policy consistency. Until the interest rate drops to single digits and stable policies and politics are ensured, businesses may not expand their operations.

It is expected that the IMF may have to revise its 9.5% inflation forecast for this fiscal year, considering prevailing trends.

Average inflation during the first eight months (July-February) of the current fiscal year slowed to 5.9%, half of the annual target of 12%.

Core inflation, which excludes energy and food items, remained stable at 7.8% in cities and 10.4% in rural areas. Average core inflation is almost 4% lower than the policy rate, providing room for further rate cuts by the central bank.

Urban inflation slowed to 1.8% due to a slower increase in both energy and food prices. In rural areas, inflation decelerated to 1.1%, according to national data. The impact was more pronounced in towns and villages due to declining food inflation.

The Pakistan Bureau of Statistics (PBS) collects inflation data from 35 cities, covering 356 consumer items. In rural areas, it collects data from 27 centres, covering 244 consumer items.

The PBS data showed deflation in food prices, which contracted to less than 1% in cities and 4.3% in rural areas. Prices of perishable food items dropped by 20% on an annual basis, according to PBS.

Non-perishable food items also saw a decline, with prices falling by 1.5%, primarily due to a reduction in wheat and wheat flour prices.

However, the PBS bulletin showed that many essential goods continued to rise at a double-digit rate.

Moong pulse prices increased by 33% compared to last year, besan by 29%, and gram pulse by 25%. Potatoes became 23% more expensive, fresh fruits 22%, butter 21%, honey 20%, milk powder 21%, meat 19%, vegetable ghee 17%, fish 16%, fresh milk 11%, cooking oil 8%, and sugar prices rose by 7% compared to last year.

On the other hand, wheat and wheat flour prices dropped by about 36%, while onion prices decreased by 57%.

The Senate Standing Committee on National Food Security and Research on Monday also highlighted the growing threat of climate change and its potential impact on the food sector. Senator Syed Masroor Ahsan pointed out the consistent downward trend in crop yields and suggested that adapting to climate change while maximizing yield could be a game-changer for the food industry. The chairman of the committee questioned why neighbouring countries have significantly higher crop production while Pakistan has experienced agricultural deficits over the past decade. He emphasized the urgent need to improve seed quality to achieve at least self-sufficiency in food production.