Fuel and food fire up July inflation to 4.1%
Inflation rate rose to 4.1% in July due to increase in prices of non-perishable food and energy goods but it remained well within the anticipated range, which still appears not enough to mold the hard stance of the central bank that is not willing to cut the interest rates to single digits.
The Pakistan Bureau of Statistics reported on Friday that average prices of the basket of essential goods and services increased at a rate of 4.1% in the first month of the new fiscal year 2025-26. It was the highest rate of increase since December last year but remained within the bound of 3.5 to 4.5% given by the Finance Ministry.
The monthly jump in the index was also at over two years' highest level, as the inflation rate rose 2.9% in July compared to the preceding month, reported the PBS.
The main reasons behind the surge in rate were increase in prices of non-perishable food and administrative increase in the rates of gas and electricity, according to the PBS data.
The central bank has kept the interest rates at 11%, which are far higher than the headline inflation rate. This solely is benefiting the commercial banks at the expense of the business and the federal government that gives away around half of the total budget in interest payments.
The government has allocated a total Rs8.2 trillion for the debt servicing, which is equal to 46% of the approved budget for the next fiscal year.
In order to justify no change in rates, the central bank's interest rate-setting committee stated this week that the inflation outlook has somewhat worsened in the wake of higher than anticipated adjustment in energy prices, especially gas tariffs.
It further added that inflation is projected to stabilize in the target range going forward despite upward revisions in motor fuel prices and electricity tariffs, energy prices remained lower on yearly basis.
Despite stating that the inflation will stabilize within the bound of 5% to 7%, the SBP did not reduce the interest rates.
The central bank further added that the energy inflation is expected to rise from current levels amidst the significant upward adjustment in gas tariffs, phasing out of temporary reduction in electricity tariffs in the fourth quarter of the last fiscal year and recent increase in motor fuel prices.
The government on Thursday cut the petrol prices over Rs7 per liter.
With the fresh inflation rate, the gap between headline inflation and the key policy rate of the SBP remained at 6.9%. For the new fiscal year, the government has approved a 7.5% inflation target, which still provides further room to reduce the interest rates.
Core inflation, calculated after excluding energy and food items, has nominally increased in cities to 7% but significantly reduced to 8.1% in rural areas, said the PBS. There was a major uptick in non-food inflation, which accelerated to 5.9% in cities and 5.4% in rural areas, according to the PBS.
Urban annual inflation accelerated to 4.4% due to increase in the prices of non-perishable food items, gas and electricity. The rate lowered to 3.5% in the rural areas last month.
The PBS reports inflation data from 35 cities and covers 356 consumer items. In rural areas, it covers 27 centers and 244 consumer items. The PBS data showed that food prices inflation slowed down to 2.2% in cities and 1.5% in rural areas due to slump in the prices of perishable food items.
Sugar prices remain a major concern for the government due to its earlier decision to allow export of 765,000 metric tons. The PBS reported on Friday that on an annual basis sugar prices were higher by 29.4% in July. There was over 6% increase in the last month alone despite the government and the Pakistan Sugar Mills Association signing a deal for keeping the ex-factory price at Rs165 per kilogram.
The PBS reported on Friday that the average price of per kilogram sugar was Rs179 while the maximum rate was Rs190 per kg.
The Auditor General of Pakistan told the Public Accounts Committee this week that the sugar mills earned around Rs300 billion bonanzas due to the decision of exporting the commodity.
The pulses also became expensive by one-fifth last month. In the non-food category, the motor vehicle taxes saw an increase of 169%, followed by 23% increase in gas prices and 14% in water supply prices.