Pakistan’s Inflation Slows to 11.8% in May, Marking Lowest Rate in 30 Months

In a significant development, Pakistan’s inflation rate has decelerated to 11.8% in May, marking the lowest reading in 30 months. This decline comes as a relief for the country, which has been grappling with persistently high inflation since May 2022.

Key Points

1. May Inflation Rate: 11.8%
   • Pakistan’s consumer price index (CPI) rose by 11.8% in May compared to the previous year.
   • The decline in inflation is a positive sign for the economy, as it indicates some stabilization after a prolonged period of surging prices.
2. Historic High Key Rate
   • The recent inflation data arrives just ahead of the central bank’s policy meeting. Notably, the key interest rate has remained at a historic high of 22% for seven consecutive policy meetings.
   • The central bank’s deliberations will be closely watched, as they consider the appropriate monetary policy stance in light of the improving inflation outlook.
3. Month-on-Month Price Decline
   • In a noteworthy development, month-on-month consumer prices fell by 3.2% in May. This represents the most significant drop in more than two years.
   • The reduction in prices across various categories contributed to the overall easing of inflationary pressures.
4. Finance Ministry’s Projections
   • The finance ministry had projected that inflation would hover between 13.5% and 14.5% in May. However, the actual reading came in even lower at 11.8%.
   • The ministry expects further moderation, with inflation easing to 12.5% to 13.5% by June 2024.
5. Factors Contributing to the Decline
   • The improved inflation outlook can be attributed to several factors:
     • Domestic Supply Chain Improvements: The supply chain for perishable items and staple foods like wheat has shown resilience, leading to lower prices.
     • Reduced Transportation Costs: A decrease in transportation expenses has also played a role in curbing inflation.
     • Economic Reforms: Pakistan’s efforts to implement reforms as part of an International Monetary Fund bailout program have contributed to the overall stabilization.
6. Expert Insights
   • Amreen Soorani, head of research at JS Global Capital, emphasized that the sharper dip in food prices was a key driver behind the lower inflation rate.
   • The positive trend suggests that the country is gradually moving toward a more sustainable inflation trajectory.

Key Highlights