Prime Minister (PM) Shehbaz Sharif has expressed satisfaction over the reduction in inflation and economic indicators, noting a significant decrease in the Consumer Price Index (CPI) in July.
The inflation rate has dropped to 11%, the PM Shehbaz Sharif stated, adding that predictions for further reductions in September are promising.
He highlighted that Moody’s has upgraded Pakistan’s credit rating, acknowledging the country’s positive economic indicators. Global financial institutions have recognised these improvements, he added.
For August 2024, headline inflation is expected to be 9.7% compared to the same month last year and 0.4% compared to the previous month, according to Taurus Research. This marks the first time in 33 months (since October 2021) that inflation has fallen into single digits. This decrease is due to a continued slowdown in core segments, stable utility prices, and lower fuel prices.
Housing and utilities category, which makes up 24% of the Consumer Price Index (CPI), is expected to decrease by approximately 1.2% compared to the previous month.
While the transport category, which accounts for 6% of the index, is expected to decrease by about 1.1% month-over-month, driven by a 5% decrease in the price of Motor Spirit (MS) and a 6% decrease in the price of High-Speed Diesel (HSD), Taurus Research said.
The food segment, which constitutes 35% of the Consumer Price Index (CPI), is likely to remain stable compared to the previous month. However, there have been reported increases in the prices of chicken, eggs, vegetables, and fruits, as per Taurus Research. Additionally, there may be some pressure from the health, education, recreation, restaurants, and miscellaneous segments.
“We expect the NCPI to average below 11% for the fiscal year 2025,” Taurus Research said in its report. A positive high real interest rate (RIR) is expected to result in another 100 basis points (bps) cut.
State Bank of Pakistan – Monetary Policy Committee (SBP-MPC) is scheduled to meet on September 12, 2024. “We expect the committee to cut the policy rate by 100 basis points to 18.50%,” said the brokerage house. This would result in a cumulative cut of 350 basis points for the calendar year to date, due to a significantly positive real interest rate on a forward-looking basis.
Our base case scenario shows an average real interest rate over the next 12 months of approximately 665 basis points at the current policy rate level, providing ample room for easing, depending on future CPI movements. Consequently, the Karachi Interbank Offered Rate (KIBOR) and yields on Government of Pakistan (GoP) securities have started to adjust accordingly, said Taurus Research.
The Prime Minister (PM) Shehbaz Sharif emphasised that the government remains committed to economic reforms, and the policy of right-sizing is being actively pursued. The positive impacts of these reforms will soon be evident in the economy, he assured.
The federal and Punjab governments have also provided significant relief to electricity consumers in their bills, the prime minister mentioned. Additionally, the prices of petroleum products have been further reduced from today. “Our government believes in passing on all benefits to the common man,” he affirmed.
Prime Minister (PM) Shehbaz Sharif praised his economic and financial team, stating that their efforts are leading the economy towards stability. He assured that the government is fully aware of the public’s difficulties and is working tirelessly to resolve them.
