Inflation fell to a 44-month low of 6.9 percent

• Slowdown due to falling commodity prices, stable rupee, high-dependency effect
• CPI is 9.3 percent in urban areas and 3.6 percent in rural areas
• Prime Minister Shehbaz hailed the downward trend as a major achievement of the government

ISLAMABAD: Annual consumer inflation fell to a 44-month low of 6.9 percent in September on the back of steady decline in global commodity prices, growth in domestic agricultural production and a stable exchange rate.

Headline inflation, as measured by the Consumer Price Index (CPI), eased to 9.6pc last month, the first single-digit reading in more than three years, data released by the Pakistan Bureau of Statistics showed on Tuesday.

The monthly consumer price index stood at -0.5pc in September, reflecting that overall prices fell compared to the previous month.

The drop in inflation from last year’s annual inflation rate of 31.4pc was attributed in part to the high-dependency effect. However, Prime Minister Shehbaz Sharif and key cabinet members took credit for the government’s economic reforms. “This is the result of the government’s efforts and economic policies,” he said, adding that the fall in inflation proved that the economy was stable.

Annual CPI inflation has historically been driven by the food and energy sectors. Better crop yields, especially wheat, rice and sugar, along with less dependence on imports, have helped lower food prices this year. Government support to agriculture, including increased credit, and a favorable climate played a key role in increasing production.

Inflation crossed 10pc in November 2021 and has been in double digits for 33 consecutive months until July 2024.

Inflation averaged 9.19 per cent in the first quarter of the current financial year (July to September) as against 29.04 per cent in the same period last year. Analysts attributed the decline to a combination of factors including lower global commodity prices, stable exchange rates and improved agricultural production.

Mohammad Sohail, CEO of Topline Securities, highlighted aggressive monetary tightening as a key factor. The State Bank of Pakistan (SBP) has “achieved bringing inflation down to below 7 percent a year ahead of target,” he said.

The SBP has gradually increased its policy rate from 7pc in August 2021 to a peak of 22pc by April 2023 in a bid to curb inflation. Since then, the rate has been cut to 17.5pc as inflation begins to ease.

Policy Research and Advisory Council Chairman Yunus Dagha warned that despite successive rate hikes, inflation continues to rise. This raises questions about the effectiveness of the SBP’s traditional monetary instruments, he said, urging a closer look at the factors behind the recent drop in inflation.

Indicators for groups

Among the 12 groups of goods and services included in the CPI, the most significant impact is probably due to the “food and alcoholic beverages” head, which has a weight of 34.6pc in the basket. The index for this group decreased by 0.59pc year-on-year, thanks to a 3.5pc drop in non-perishable food prices.

The index for the second-largest group – “housing, water, electricity, gas and fuels”, which weighs 23.6pc in the CPI basket – rose 20.9pc in September, down slightly from 22.2pc the previous month. .

The largest drop of 7.3pc was seen in the “Transport” group, which accounted for 5.9pc of the basket.

Urban vs Rural Inflation

Urban inflation stood at 9.3pc year-on-year in September, down from 11.7pc in August, down 0.5pc month-on-month. In rural areas, inflation was significantly lower, at 3.6pc year-on-year, also down 0.5pc month-on-month.

Food inflation in urban areas declined to 1.7 percent, while rural food inflation declined by 0.9 percent. Core inflation, which excludes volatile food and fuel prices, was recorded at 9.3 percent in urban areas and 12.1 percent in rural areas.

In urban areas, prices of onion (78pc), dal (56.98pc), besan (47.53pc), fish (29.85pc), fresh vegetables (29.17pc) and milk powder increased the most year-on-year. (21.1pc), chicken (21.08pc), dry fruits (20.98pc), meat (20.92pc), gram total (17.69pc), pulses moong (16.42pc), fresh fruits (15.19pc), beans (14.97pc) , honey (9.15pc), beverages (8.99pc), butter (8.41pc), fresh milk (8.19pc), dairy products (8.18pc), and potatoes (7.95pc).

In contrast, prices of wheat (38.87pc), wheat flour (37.23pc), sugar (14.56pc), cooking oil (11.85pc), ghar (10.59pc), wheat products (9.55pc) and pulse masoor decreased. (7.39pc), mustard oil (6.96pc), rice (6.72pc), vegetable ghee (6.11pc), tea (2.01pc), bakery and confectionery (1.06pc), and dessert manufacturing (0.19pc).

‘hard work’

PM Shehbaz hailed the downward trend as a major achievement of his government. “This is due to the hard work of the government’s economic and financial team. The reduction in inflation rate to 6.9 per cent is a testament to the government’s efforts towards a sustainable economy,” he said in a statement.

He noted that reduced interest rates would also boost commercial activity, benefiting the average citizen. Besides, he added, consumers are benefiting from regular reduction in prices of petroleum products.

The Prime Minister said that the main objective of the government is to help the common man.

He stated that there were elements in the country who wanted the country to default on its debt payments, but their plans failed.

Information Minister Attaullah Tarar pointed out that foreign exchange reserves have improved, the currency is stable and inflation has come down. He also criticized the opposition’s allegations of destabilizing the economy.

Published on Dawn, October 2, 2024