ISLAMABAD   -   Pakistan’s inflation rate was recorded at 9.1 percent in May due to the continuous impact of the government’s economic policies including rupee devaluation and increase in energy costs.

Inflation has increased to 9.1 percent in May after slightly declining to 8.8 percent in April this year. Inflation is at higher side mainly due to the impact of the incumbent government’s economic policies including devaluing the currency, increasing gas and electricity prices and massive borrowing from the central bank. Over the past few months, prices of fresh vegetables, fruits and meat have posted persistent increase in major urban centres.

According to the latest data of Pakistan Bureau of Statistics (PBS), inflation increased by 0.8 percent in May 2019 on month-on-month basis, as compared to an increase of 1.3 percent in the previous month. Core inflation measured by non-food non-energy CPI (Core NFNE) increased by 7.2 percent on (YoY) basis in May 2019 as compared to an increase of 7 percent in the previous month and 7 percent in May 2018.

The inflation would continue to increase in the months to come due to the economic policies of the incumbent government. According to the government’s estimates, the average inflation is expected to be 8.5 percent in the next fiscal year (2019-20) that may touch 10 percent by fiscal year 2020-21. Main reasons behind expected increase in inflation rate are government’s commitments with IMF and continuous hike in oil prices. 

The government had once again enhanced the prices of oil products for the ongoing month of May. The government had agreed to introduce massive revenue generation measures worth of around Rs450 to Rs500 billion in the budget. Meanwhile, the government had also assured the IMF to increase the power tariff to reduce the subsidies given to the electricity consumers. As per plan, the government would increase the power tariff by Rs2.60 per unit in two stages, enhancing the tariff to Rs 15.58 per unit from existing rates of Rs 12.98 per unit. However, there would be no increase for the domestic consumers using up to 300 units per month. All these measures would fuel the inflation rate in the next fiscal year starting from July 2019.

In a bid to stop the increasing inflation, the State Bank of Pakistan (SBP) last month had increased the interest rate by 150 bps to 12.25 percent. According to the SBP, the inflationary pressures are likely to continue for some time. The most recent IBA-SBP consumer confidence survey also shows that most households expect higher inflation during the next six months. Taking into account the recent developments discussed above and outlook for key sectors, average headline CPI inflation is expected to be in the range of 6.5-7.5 percent in FY19 and it is anticipated to be considerably higher in FY20. This inflation outlook is subject to a number of upside risks from an expected rationalization of taxes in the upcoming budget, potential adjustments in electricity and gas tariffs, and volatility in international oil prices.

According to the PBS data, the CPI based inflation was recorded at 7.19 percent during first eleven months (July to May) of the ongoing fiscal year. Meanwhile, the Sensitive Price Indicator (SPI), which gauges rates of kitchen items on weekly basis, increased by 4.65 percent. Similarly, the wholesale price index (WPI) based inflation enhanced by 11.9 percent in the period under review.

The break-up of inflation of 9.11 percent in May 2019 showed that food and non-alcoholic beverages prices increased by 8.58 percent. Similarly, health and education charges went up by 8.7 percent and 5.46 percent, respectively. Similarly, prices of utilities (housing, water, electricity, gas and fuel) increased by 9.96 percent in last the month.

Meanwhile, the prices of alcoholic beverages and tobacco went up by around 13.36 percent. Price of clothing and footwear increased by 6.49 percent and furnishing and household equipment maintenance charges 8.75 percent. Recreational charges and those related to culture went up by 7.1 percent in the period under review, while amounts charged by restaurants and hotels by 5.81 percent in May 2019 as compared to the same month last year.

In food commodities, price of onions increased by 27.19 percent, potatoes price enhanced by 28.8 percent, fresh fruits price went up by 9.03 percent, pulse mash price by 5.93 percent; pulse moong price surged by 5.48 percent, sugar prices up by 3.44 percent and gur prices enhanced by 4.13 percent during May as compared to April.

In non-food commodities, price of motor fuel enhanced by 6 percent, kerosene oil by 3.72 percent, cotton cloth 2.5 percent and motor vehicles by 1.78 percent.  However, price of tomatoes reduced by 32.86 percent, chicken 5.33 percent, wheat 0.86 percent in the period under review.f