The government of Pakistan has projected a significant increase in the inflation rate for September, estimating it to reach between 29% and 31%. This forecast is primarily attributed to rising electricity and fuel prices. Pakistan has recently been highlighted in global publications as having the highest inflation rate in Asia.
In August, inflation had settled at 27.4% after peaking at 38% in the previous fiscal year. The projection for September marks a reversal of the recent downward trend in inflation.
The Asian Development Outlook, published by the Asian Development Bank, had earlier projected an average inflation rate of 25% for Pakistan in the current fiscal year, positioning it as the highest among all Asian economies.
Also Read: SPI Reports Weekly Inflation Increase from Food and Fuel Prices
The finance ministry noted that the upward adjustment in energy tariffs is likely to further intensify inflationary pressures, impacting transportation costs, essential items, and services. Additionally, a significant increase in fuel prices in September is expected to contribute to high inflation in the coming month.
The official inflation reading for September is expected to be announced by the Pakistan Bureau of Statistics (PBS) shortly.
Despite the government’s inflation target set at 21%, it is expected to be significantly exceeded due to these inflationary pressures.
The State Bank of Pakistan (SBP) has maintained the policy rate at the previous level due to anchored inflationary expectations. While the double-digit base effect provides some relief to September’s inflation, it appears minimized due to the substantial increase in fuel prices.
The report also noted potential risks to the cotton crop due to pest attacks but highlighted that cotton arrivals are higher compared to the previous year. This is attributed to a recovery from the devastating floods that affected cotton production last year.
On the external front, the finance ministry anticipates an increase in foreign remittances due to actions against speculative activity in the foreign exchange market. This crackdown is expected to positively impact remittances, trade, and the current account balance.
Furthermore, Pakistan’s main export markets, including the US, the UK, the Euro Area, and China, are showing positive trends in trade, indicating prospects for export growth in the coming months. However, imports are expected to gradually increase to stimulate economic activities.
The finance ministry expressed satisfaction with the fiscal performance thus far and expects that economic revival plans and prudent actions will attract new investments, leading to higher and more inclusive economic growth in the future. The current account deficit for July-August FY2024 improved compared to the previous year, largely reflecting an improvement in the trade balance.
