Pakistanis seeking relief from high prices can breathe a sigh of temporary relief. Data from the Pakistan Bureau of Statistics (PBS) for May 2024 shows a significant decline in inflation compared to both the previous month and the same period last year. Let’s delve deeper into the numbers:
Headline Inflation Shows Dramatic Improvement
The Consumer Price Index (CPI) based inflation, a key indicator of overall price changes, dropped to 11.8% year-on-year (YoY) in May 2024. This is a substantial decrease from 17.3% in April 2024 and a whopping 38% in May 2023. This marks the lowest inflation rate since November 2021, according to Arif Habib Limited (AHL).
Furthermore, inflation on a month-on-month (MoM) basis also witnessed a positive trend. May 2024 saw a decrease of -3.2%, compared to -0.4% in April 2024. This suggests a potential slowdown in price increases within the month.
Urban vs. Rural Inflation
While the overall inflation picture is improving, there’s a slight difference in the experience between urban and rural areas:
- Urban areas: Inflation remained higher in urban centers with a YoY rate of 14.3% in May 2024, though down from 19.4% in April 2024. MoM inflation also showed improvement, decreasing to -2.8% in May 2024.
- Rural areas: Rural Pakistan saw a more dramatic drop in inflation. YoY inflation stood at 8.2% in May 2024, a significant improvement from 14.5% in April 2024. MoM inflation followed a similar trend, dropping to -3.9% in May 2024.
Other Inflation Indicators Show Positive Signs
The Sensitive Price Index (SPI), which tracks prices of essential commodities, also displayed a welcome decrease. YoY inflation for SPI reached 15.3% in May 2024, down from the previous month. MoM inflation saw an even steeper decline of 4.0%.
The Wholesale Price Index (WPI), which reflects inflation at the wholesale level, also showed improvement. WPI-based inflation reached 9.9% YoY in May 2024, while MoM inflation dipped to -2.5%.
Core Inflation: A Mixed Bag with Potential Upside
Core inflation, measured by excluding volatile food and energy prices, presents a slightly different picture:
- Both Urban and Rural core inflation (measured by trimmed mean) witnessed a YoY increase in May 2024 compared to April 2024. However, they remained significantly lower than the May 2023 figures.
- Interestingly, both categories showed a decrease on a MoM basis in May 2024. This suggests a potential slowdown in core inflation in the coming months.
Reasons for Optimism, But Challenges Remain
Several factors likely contributed to the decline in inflation. These include:
- Elevated inflation levels in the previous year, creating a base effect for comparison.
- Improvements in the domestic supply chain for essential items like wheat and perishable goods.
- Reduction in transportation costs.
However, challenges remain. The high interest rate environment could dampen economic activity. Additionally, international factors like rising global food and oil prices could put upward pressure on inflation again.
Conclusion
While the decline in inflation in May 2024 is encouraging, it’s important to maintain a cautious outlook. Continued government efforts to stabilize the economy and address supply chain issues will ensure sustained price stability for Pakistani citizens.
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