Pakistan's inflation declines further to six-month low of 28% in July

Pakistan's inflation rate fell to 28.3 per cent in July, the lowest in six months, the statistics bureau said in a statement on Tuesday. The cash-strapped country witnessed record inflation of nearly 38 per cent in May, but since then this number has been declining. In June, the inflation number came in at 29.4 per cent.

The inflation number came in just hours after Pakistan increased the prices of petrol and diesel to meet fiscal objectives laid down by the International Monetary Fund (IMF). While inflation has eased a bit in July, the recent hike in fuel prices may further push the inflation in the coming months.

Also read: Pakistan hikes petrol, diesel prices by Rs 19 per litre from August 1 in ‘national interest’

Earlier in the day, Finance Minister Ishaq Dar hiked the petrol and diesel prices by nearly Rs 20. Now, petrol is available at Rs 272.95 per litre, while diesel is at Rs 273.40 per litre. He tried to justify the move by saying that fuel prices have increased sharply in global markets in the last 15 days but his government attempted to minimise the hike. Benchmark Brent crude oil prices climbed 16 per cent during July, according to Reuters.

Dar, who was under intense pressure to steer the country out of a possible default crisis, said Pakistan was not in a position to deviate from the IMF's standby agreement, finalised on June 30 after eight months of negotiations over tough fiscal discipline measures.

"You all know the international commitments we have with the IMF regarding the petroleum levy," he said, adding the increase could have been smaller without the pledges. Pakistan has committed to a series of measures - to secure $3 billion in funding from the global lender - such as a petroleum levy of up to Rs 50 a litre, increasing energy prices, raising extra revenues, and a market-based exchange rate.

Pakistan's central bank - State Bank of Pakistan - on Monday kept its key rate unchanged at 22 per cent on expectations that inflation will most likely decline gradually in the coming months. SBP Governor Jameel Ahmad said the inflation outlook for the next fiscal year was between 20 per cent and 22 per cent, in line with government projections. He also said Pakistan's deal with IMF had not necessarily required a further rate hike.

"The IMF did not say anywhere that we have to increase rates," Ahmad said. "They said the policy stance should be aggressive and we will go forward with an
aggressive policy stance."

The Governor said that Pakistan was "on course" to meet the medium-term inflation target of 5-7 per cent. Pakistan's central bank has raised its key policy rate by 12.25 percentage points since April 2022 to curb soaring inflation.

Soon after the inflation number came in, Shahrukh, an analyst, said Pakistan's Consumer Price Index for July came in at 28.3 per cent against expectations of 26.05 per cent. This is, he said, before the increase in petrol prices announced today. "Despite the high base, the increase in prices of utilities will keep inflation much higher than the central bank's targets."

(With inputs from Reuters)