CPI Inflation in Pakistan reduced for the third consecutive month
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ISLAMABAD - Pakistan’s consumer inflation, which is measured through the Consumer Price Index (CPI), decreased to 8.50% in April 2020 from 10.20% in March 2020. This was the lowest reading in the last nine months, with July 2019’s inflation recorded at 8.40%.
According to the Pakistan Bureau of Statistics, link the inflation reading for April 2020 was 1.70% lower than March’s 10.50%. Consumer price inflation was 10.20% in March after having risen in January to 14.56%.
The fall in inflation was likely due to the overall slowdown in the economy amid COVID-19 and reduction in oil prices. The prices of vegetables, milk, tomatoes, wheat, petroleum products, and electricity decreased while the prices of pulses, fruits, meat, medicines, sugar increased.
Minister for Planning, Development and Special Initiatives Asad Umar said this was the third successive month inflation had declined. Umar said that with the sharp reduction in petroleum prices on May 1, May 2020’s inflation would be still lower.
A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities said the outlook is changing fast which is led by plunge in oil prices, reductions in duties, ban of exports and strict actions against hoarders. The new normal range hovers 7-9% that justifies and creates some for further monetary easing, he added.
On a month-on-month basis, it decreased by 0.8% in April 2020 as compared to an increase of 0.04% in the previous month and an increase of 0.7% in April 2019.
The CPI on the new base year (2015-16) comprises urban CPI and Rural CPI. Urban CPI covers 35 cities and 356 consumer items. The Rural CPI covers 27 rural centers and 244 consumer items. In the new base year (2015-16) National CPI for 12 major groups is also computed by taking a weighted average of Urban CPI and Rural CPI.
Urban CPI inflation increased by 7.7% on a year-on-year basis in April 2020 as compared to an increase of 9.3% in the previous month and 8.4% in April 2019. On a month-on-month (MOM) basis, it decreased by 0.7% in April 2020 as compared to an increase of 0.1% in the previous month and an increase of 0.8% in April 2019.
Rural CPI inflation increased by 9.8% on a year-on-year basis in April 2020 as compared to an increase of 11.7% in the previous month and 8.1% in April 2019. On a month-on-month basis, it decreased by 1.1% in April 2020 as compared to a decrease of 0.1 % in the previous month and an increase of 0.6 % in April 2019.
The IMF foresees Pakistan’s consumer price index rising by 11.1% this year before easing to 8% next year. While Asian Development Bank (ADB) has predicted an increase in the inflation rate for Pakistan to 11.5% in the fiscal year 2020, reflecting a sharp rise in food prices in the first part of the fiscal year. Inflation in Pakistan will moderate to 8.3% in 2021 as food prices stabilize.
State Bank of Pakistan slashed the interest rates three times after keeping it at 13.25% to ease the blow after the coronavirus began hurting businesses and household finances. The State Bank had already cut rates in anticipation of the softening of inflationary pressures. Easing may also be on the cards in May as well.
SBP first lowered policy rates by 75 bps in its scheduled march meeting and a further 150 bps and 200 bps in two emergency meetings, bringing the key policy rate from 13.25% to 9.0%.
