Tag: administered prices

  • Inflation may drop to 20-22% in the coming year: SBP report

    Inflation may drop to 20-22% in the coming year: SBP report

    In the Governor’s Annual Report 2022–23, released ahead of the upcoming national election, the Chief of the State Bank of Pakistan (SBP) conveyed that the country’s inflation is expected to decrease to approximately 20–22 per cent in fiscal year 2024.

    The SBP remains committed to making decisions aimed at preventing persistently high inflation. Notably, Pakistan’s economy fell significantly short of its fiscal and primary surplus targets in FY23, resulting in a contraction of the real GDP to 0.2 per cent.

    During FY23, Pakistan, with a population of 241 million, witnessed its highest-ever inflation, leading to historic lows in its currency value. The situation was mitigated by a $3 billion IMF bailout in July, preventing an imminent sovereign default.

    Governor Jameel Ahmed highlighted in the report that the Consumer Price Index (CPI) surged to 29.2 per cent in FY23, aligning with the upper bound of the bank’s revised projections.

    The SBP remains committed to anchoring inflation expectations to achieve its medium-term target of 5-7 per cent by the end of FY25.

    Fiscal and policy measures implemented before and after the bailout are contributing to stabilising Pakistan’s $350 billion economy as the country approaches the national election scheduled for February 8.

    Despite missing fiscal and primary surplus targets by a considerable margin, the SBP emphasises its dedication to curbing inflation.

    Simultaneously, the finance ministry anticipates a moderate inflation outlook for the remaining months of FY24, even with the upward revision of administered prices, particularly gas prices.

    According to the ministry’s monthly economic report, Consumer Price Index (CPI)-based inflation in Pakistan for December is projected to be in the range of 27.5-28.5 per cent.

    Looking ahead, the ministry foresees a further easing of inflation to 24–25 per cent in January 2024.

  • Pakistan’s finance ministry predicts high inflation to persist

    Pakistan’s finance ministry predicts high inflation to persist

    As per the Finance Ministry’s monthly economic update and outlook for February, inflation is projected to range from 28 per cent to 30 per cent in the near future, before gradually subsiding. The report cites several reasons for this, including an uncertain political and economic environment, currency depreciation, a recent increase in energy prices, and higher administered prices.

    The report notes that interest payments will contribute to total expenditures, constraining the fiscal space available for normal operations, investments, and social and structural policies.

    While the State Bank of Pakistan (SBP) has been implementing a contractionary monetary policy, it is expected that inflationary pressures will take some time to ease. The federal government, in collaboration with provincial governments, is closely monitoring the demand-supply gap of essential commodities and taking necessary measures to stabilise prices.

    The resumption of an economic stabilization program will aid in achieving economic and exchange rate stability and provide an opportunity to benefit from falling international commodity prices. This will also help control cost-push inflation and allow the government to pass on lower commodity prices to domestic consumers.

    The report notes that favorable weather and the use of inputs by farmers should help meet the 28.4 million-ton wheat target, while disbursements under the Kissan package should positively impact agricultural productivity and overall economic activity. The cyclical pattern of large-scale manufacturing (LSM) in Pakistan is positively correlated with the cyclical position of the country’s main trading partners. In December 2022, LSM activity was as expected, with no unexpected shocks observed in that month.

    However, the international economic environment remains uncertain, as evidenced by the Composite Leading Indicators (CLI) in Pakistan’s main export areas, which were somewhat negative compared to historical standards.

    The ministry anticipates that LSM will increase in January compared to the previous month, partly due to seasonal factors. The ministry forecasts that LSM output may marginally decline on a YoY basis, mainly due to the high base effect in the reference period