Pakistan inflation continues easing, May CPI expected to stay below 13.5pc
Business
Trend boosts prospects of interest rate cuts, as Monetary Policy Committee meets on June 10
- Finance Division in its monthly report mentions improvements in domestic supply chain of perishable items
ISLAMABAD (News Desk) – As inflation has been on a decline during the current calendar year, the Finance Division expects the consumer price index (CPI) for May to drop further and stay between 12.5-13.5 range, thus boosting the hopes for interest rate cuts – considered a must for reviving Pakistan’s economy.
“Nonetheless, there are prospects for gradual easing, with expectations of a decrease to 12.5-13.5 percent by June 2024,” it says in the latest Monthly Economic Update and Outlook – May 2024.
The CPI for the month of April was recorded at 17.3pc, meaning that the government is expecting another decrease of at least 4pc.
Keeping in mind the decline in food prices, the report says the inflation outlook for May 2024 continues on a downward trajectory, attributed to elevated inflation levels previous year and improvements in domestic supply chain of perishable items and staple food like wheat along with the reduction in transportation costs.
The central bank’s Monetary Policy Committee will meet on June 10 to make decision of interest rates after Finance Minister Aurangzeb promised reduction in borrowing costs in the coming months.
AGRICULTURE
About the summer [Kharif] crops which are in the sowing process, the report predicts “favourable production” against the last year, saying commodity prices are expected to remain stable due to better crops production.
However, the Finance Division has emphasised the importance of providing “targeted subsidies” which will be “critical to deal with the financial challenges farmers face during the season”.
In this regard, the incentives offered by the federal government and the Kissan Card Scheme by Punjab as well as incentives by other provinces are favourable for the agriculture-led economic growth.
Read more: India monsoon rains expected to be above average in a boost for agriculture
Another factor, the report mentions is the forecast made by Pakistan Meteorological Department, which says above-normal precipitation, thus benefiting agriculture in the country.
INDUSTRIES
The report says the LSM (large scale manufacturing) cycle usually follows the cyclical movements in the main trading partners. But since it is focused on the main industrial sectors and not on total GDP, it is somewhat more volatile than the cyclical component of GDP in Pakistan's main export markets.
Hence, the LSM witnessed a marginal contraction of 0.1pc during Jul-Mar period, while it grew by 2.04pc in March 2024 on year-on-year basis.
In Q3 of 2024-25, LSM growth became positive and is expected to remain moderately positive on average throughout the second half of the current fiscal year.
“The continuing improvement in economic conditions in foreign markets has stimulated external demand suggesting strong growth prospects for export-oriented industries. “This is evidenced by an observed turnaround in the imports of machinery and raw materials.”
