Weekly inflation rate falls to decade-low

• Decline represents lowest inflation rate since October 2014. 
• Experts largely attribute decline in inflation to high base effect.
• Sensitive Price Indicator shows 0.65% drop from previous week. 

Inflation in Pakistan experienced a sharp decline, dropping to 1.8% year-on-year for the week concluding on January 9, compared to 3.97% observed the prior week. 

This represents the lowest inflation rate since October 2014, a remarkable change from the staggering peak of 48.35% in May 2023, according to data from the Pakistan Bureau of Statistics (PBS).

The decline in inflation is largely attributed to a high base effect, according to independent economists. They say that while the numbers are improving, the average consumer continues to feel the pinch. 

The Sensitive Price Indicator (SPI), which tracks the cost of essential goods, showed a 0.65% drop from the previous week, indicating a mixed trend in the prices of 51 monitored items across 17 cities. Of the items tracked, 18 saw price increases, while 10 experienced decreases, and 23 remained unchanged.

Notably, tomatoes plummeted by 31.4%, and potatoes fell by 10.4%. Other reductions included eggs down 6%, gram pulse 1.64%, onions by 0.87%, rice basmati broken by 0.54%, rice IRRI-6/9 by 0.40%, and mash pulse by 0.27%.

While cooking oil and sugar recorded modest increases of 1.56% and 1.23%, respectively. Prices for chicken, vegetable ghee, bread, washing soap, garlic, and firewood also increased but by less than 1% compared to the previous week.

Economists predict that the declining SPI may lead to a sharp reduction in the Consumer Price Index (CPI) inflation for January 2025, with estimates ranging between 2.5% to 3%, down from 4.1% in December 2024. This trend could prompt the central bank to consider a cut of approximately 1.5% in the discount rate by the end of this month. Currently, the policy rate is at 13%.

SPI data also revealed disparities in how inflation impacts different income groups. Households earning less than Rs17,732 per month faced a 1.44% increase in prices year-on-year, while those with monthly earnings exceeding Rs44,175 experienced a 2.22% rise.

According to the SPI bulletin, among the items with the largest week-on-week decline, tomatoes saw a sharp fall of 31.4%, while potatoes became 10.4% cheaper. Other food items that experienced price reductions included eggs, which fell by 6%.

A review of the SPI bulletin shows that inflation affected households differently. The lowest income group, earning less than Rs17,732 per month, faced a 1.44% year-on-year increase in prices. In contrast, households earning more than Rs44,175 monthly saw a rise of 2.22%.

Despite the overall decline, several essential items have seen substantial price hikes over the past year. Ladies’ sandals surged by 75%, while potatoes and gram pulses rose by 59% and 42%, respectively.

Similarly, moong pulse price increased by 34%, powdered milk by 26%, beef by 24%, and garlic by 18%. Gas charges for the lowest consumption slab increased by 15.5%, vegetable ghee by 15.5%, cooked daal by 15%, shirting by 14.4%, and firewood by 13% over the past year.

Conversely, some items such as onions and wheat flour saw significant price reductions of 36% each. Eggs and chili powder prices declined by 24% and 20%, respectively. Electricity charges for the lowest consumption slab decreased by 18.1%.

Other items that became cheaper included masoor pulse by 11.2%, rice basmati broken by 9.1%, mash pulse by 7.0%, diesel by 6.4%, bread by 5.5%, and petrol by 5.45%.