The Pakistan Bureau of Statistics (PBS) reported on Monday that the key inflation benchmark increased by 6.2% on a year-on-year basis in October. The surge was in line with the government and market expectations. The government has attributed the increase to supply shocks caused by floods and the Pak-Afghan border closure. It was the second consecutive month when the price level increased in the country compared to a year ago. In urban areas, inflation increased by 6% on a year-on-year basis, while there was a surge of 6.6% in rural areas and towns. Inflation is again becoming a headline concern after prices started increasing for the past couple of months.
However, core inflation, which is calculated after excluding food and energy items to observe underlying pressures, also jumped. The core indicator suggests whether the rise is temporary or reflects longer trends.
The PBS reported that, measured by non-food and non-energy items, core inflation increased by 7.5% in urban areas compared to 7% of the previous month. Likewise, core inflation in rural areas also increased to 8.4% compared to 7.8% in the previous month. This suggests that the current trend may continue for a few months. Last month, the World Bank upwardly adjusted its inflation forecast for Pakistan to 7.2% for this fiscal year, which is slightly above the target.
The central bank had earlier said that inflation would temporarily increase this year because of floods and would start slowing during the later part of the second half of the fiscal year. The central bank had kept the interest rate unchanged at 11%, which is far higher than the headline inflation rate.
While addressing a press conference, Finance Minister Muhammad Aurangzeb said that interest rates were falling in the right direction but again hoped for a further cut in the rate.
Last month, the business community complained to the prime minister about high interest rates despite there being significant scope for reduction.
The government has kept Rs8.2 trillion for interest expense in the budget, but Secretary Finance, Imdad Ullah Bosal, said that actual spending would remain below the allocation due to better debt management.
The central bank is maintaining interest rates far above prevailing inflation levels, even as it projects that the economic growth target of 4.2% will again be missed this fiscal year.
The data showed that food price inflation accelerated to 4.5% in cities and 6.8% in rural areas, due to an increase in perishable and non-perishable food items.
According to the details, among non-perishable foods, which make up nearly 30% of the inflation basket, prices rose by 6.2% on average last month compared to a year earlier. In contrast, perishable goods recorded a 1.7% increase.
Due to border closures with Afghanistan, tomato prices increased 127%, followed by a 35% increase in sugar prices. The government has failed to deliver on its promise of ensuring the provision of sugar at less than Rs165 per kilogram. Wheat rates also surged by one-fourth, followed by a 16% increase in the rates of wheat flour. However, onion rates decreased by one-third, followed by a 29% reduction in chicken prices. There was also an administrative increase of 23% in the rates of gas last month compared to a year ago. But electricity charges were 16% lower than a year ago.
The Minister for Power, Sardar Awais Leghari, said on Monday that electricity prices were Rs10.3 per unit lower than a year ago due to renegotiations of energy agreements and reducing losses and inefficiencies.