ISLAMABAD: In May, Pakistan experienced an unprecedented surge in its annual inflation rate, reaching a record-breaking 38%. The surge can be attributed to supply shocks, currency devaluation, and the lack of measures to curb hoarding and profiteering.
As the general elections approach later this year, the ruling coalition faces an arduous task defending its policies, as the populace struggles to make ends meet.
According to the Pakistan Bureau of Statistics (PBS), the Consumer Price Index rose to 38% last month compared to the previous year, marking the highest inflation rate ever recorded in the country. This figure significantly exceeded the Ministry of Finance’s forecast.
During a parliamentary committee hearing, Minister of State for Finance Dr. Aisha Pasha admitted that inflation has become deeply rooted, with high expectations of further inflation. However, she expressed hope that after the next fiscal year, the inflation rate would decrease to single digits.
For the upcoming fiscal year, the government is setting the inflation target at 21%, suggesting that no relief is in sight for the current dire situation faced by the population.
Rural areas have been hit the hardest, experiencing an average price increase of 42.2% for goods and services in the past month. This is particularly significant considering that the majority of the population still resides in rural areas.
Meanwhile, the inflation rate in urban areas soared to 35.1%, according to the PBS. Politicians will undoubtedly face the brunt of public frustration during the election season, as stated by Khalid Magsi, a member of the National Assembly from Balochistan.
Food inflation skyrocketed to 52.4% in rural areas and remained at 48.1% in cities, as reported by the PBS.
The main drivers behind Pakistan’s higher inflation include global commodity prices, the removal of subsidies, increased electricity and gas prices, and currency devaluation, according to the Minister of State for Finance. She also criticized the governments in Punjab and Khyber-Pakhtunkhwa for not doing enough to curb inflation.
One of the criticisms against the Pakistan Tehreek-e-Insaf government is its failure to control inflation, which stood at 13.4% at the end of its tenure.
According to MNA Ali Pervaiz Malik, excessive note printing is also contributing to rampant inflation in Pakistan.
SBP Deputy Governor Dr. Inayat Hussain revealed that over the past 13 years, currency circulation has increased by 600% to Rs8.8 trillion. Additionally, the currency in circulation as a percentage of GDP rose from 8.7% in 2010 to 11.3% in 2022, indicating the growing size of the informal economy in Pakistan.
Despite setting the interest rate at 21%, the highest in Pakistan’s history, the central bank was unable to prevent the inflation index from reaching an all-time high of 38% in May. The State Bank of Pakistan (SBP) is scheduled to announce the next monetary policy after the budget, which will provide insight into the government’s future priorities.
Eight consumer price groups experienced inflation rates above 40%, with alcoholic beverages and tobacco witnessing a surge of 124% due to increased taxes imposed by the government. Surprisingly, the Federal Board of Revenue recorded a massive revenue shortfall of Rs428 billion during the first 11 months of the fiscal year, despite the tax increase.
Nearly all consumer goods have witnessed price increases in recent months.
In May, core inflation, excluding volatile energy and food prices, reached alarming levels of 20% in urban areas and 26.9% in rural areas, significantly surpassing the central bank’s interest rate. This persistent rise in core inflation is a matter of concern for the members of the monetary policy committee, despite ongoing increases in interest rates.
Food inflation witnessed a substantial increase, mainly due to disruptions in supply chains and inadequate checks. The prices of essential goods and non-alcoholic beverages surged by 49% just last month.
Flour, the staple food of every household, experienced an astonishing price hike of nearly 100%, while wheat prices rose by 95% in May compared to the previous year.
Inflation rates for transportation stood at 53%, recreation and culture at 72%, beverages and tobacco at 124%, and perishable food products at 34%. Non-perishable food items also witnessed a surge of 51% in inflation last month.
The prices of pulses jumped by 58%, while tea prices increased by a staggering 113%.
Non-food inflation rates reached 26.6% in cities and 32.5% in rural areas. Electricity prices saw a significant increase of 59%, with gas prices rising by 63% compared to the previous year. Petrol became 70% more expensive, and the cost of textbooks rose by 114%, while stationary prices soared by 80%.
Data for the July-May period of the current fiscal year revealed an average inflation rate of 29.2%, far exceeding the official target of 11.5% set before the floods.
According to Dr. Aisha, the government and provinces were ill-equipped to manage the rapid inflation, partially due to elevated global commodity prices.
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