Energy keeps CPI in double digits

Inflation in Pakistan slowed down to 10.3% in September but it remained higher than the official forecast due to increasing prices of electricity and fuel, which offset the positive impact of a significant slowdown in prices of food commodities.

According to the Pakistan Bureau of Statistics (PBS), the energy-group prices further increased compared to a year ago. This kept the overall annual inflation rate at 10.3%, which was slightly higher than the official projection of the Planning Commission.

The commission's assumption had been used to project a 7% to 8% average inflation during the current fiscal year despite the Middle East conflict. However, the monthly inflation marginally inched up to 1.3% due to a constant increase in fuel prices, which was the highest rate since April this year.

Pakistan on Tuesday informed the International Monetary Fund (IMF) that despite price pressure from the Middle East war, the inflation rate would remain below the official target of 8.2%. The government's assessment is based on the assumption that if the situation normalises until October 2026 and the average Brent crude price stabilises at $80 per barrel in the current fiscal year, the inflation will remain at 7.5%.

If the oil price remains at around $100 per barrel till December, the projected inflation may increase to 8.2% for the fiscal year. The government has set the inflation target for this fiscal year at 8.2% but it said that due to an anticipated moderation in global crude oil prices, improved agricultural output, exchange rate stability, effective administrative measures and a favourable base effect during the second half, the inflation is projected to stay within the 7% to 8% range, with the most likely outcome being around 7.5%.

Its assessment was that price pressures would remain elevated till December but thereafter, they were expected to moderate gradually over the course of the year, reflecting improving domestic supply conditions and a relatively favourable external outlook.

According to the PBS, the inflation went down both in urban and rural areas, standing in the range of 10.1% in urban areas and 10.5% in rural areas. Food inflation significantly slowed down from 12.1% to 8.1% in urban areas while it went down to 7.7% in rural areas. However, the energy group saw a northbound trend in both urban and rural areas. The pace accelerated to 11.5% in urban areas and 13.1% in rural areas.

During the ongoing review talks, the IMF has urged Pakistan to adjust both exchange rate and interest rate policies to tame inflation and keep the current account deficit under check. However, the federal and central bank authorities were of the view that the policies were appropriate in the given macroeconomic environment. Last month, the central bank kept its policy rate unchanged at 11.5% with a seven to three majority vote.

Core inflation, excluding food and energy prices, slowed down both in urban and rural areas, ranging from 8.1% to 8.6%, much below the policy rate. But the cost of housing, water, electricity, gas and fuel remained the main concern in addition to transportation charges, according to the official bulletin.

PBS reported that petrol price was 39% higher in September compared with a year ago. Within one month, there was an 11% increase in the price of petrol, which was a steep rise given the overall high price. The per-litre petrol was at Rs389.4 for Thursday and the price was Rs400 in case of high-speed diesel that was keeping transport charges high.

The cost of transport services went up by 30% last month over a year ago, according to the PBS. The data-collecting agency stated that electricity prices were higher by 33% in September over a year ago and within one month there was a 15% surge. The high cost of electricity is already driving consumers away from the national power grid.

Motor vehicle taxes jumped by 39% over a year ago, contributing to increase in expenses. PBS said that onion prices were 125% higher in September on a yearly basis, followed by a 41% increase in wheat prices.

Owing to serious management issues, the government is already in the process of importing 765,000 tonnes of wheat. Wheat flour prices were higher by 32% compared to a year ago. But prices of potatoes, chicken, eggs and sugar were lower in the range of 30% to 20% last month.