“In June, headline inflation stood at 12.6%, according to data from the Pakistan Bureau of Statistics released on Monday. This marks an increase from May’s year-on-year rise of 11.8%, yet remains below the fiscal year average of 23.4% ending June 30.
Month-on-month, consumer inflation, measured by the Consumer Price Index (CPI), increased by 0.5% in June. The CPI trend aligns with forecasts from both the State Bank of Pakistan and the finance ministry, which anticipated a rise due to spending associated with the Eidul Azha holiday.
Following a peak of 38% in May 2023, inflation has moderated, providing some relief to an economy grappling with high inflation and sluggish growth. Last month, the central bank reduced the main interest rate by 150 basis points, the first decrease in nearly four years, from a historical high of 22%.
Finance Minister Muhammad Aurangzeb anticipates further rate cuts this year amid declining inflation. These cuts are crucial for the government’s efforts to manage its fiscal deficit, targeted at 5.9% of GDP, with substantial interest payments on local debt. Fiscal consolidation forms a critical component of ongoing discussions with the International Monetary Fund (IMF) for a potential bailout package.
The government aims for a substantial bailout of $6-$8 billion and aims to finalize an agreement this month following the passage of a tax-heavy budget last Friday. However, in its recent monetary policy statement, the State Bank cautioned about potential inflationary pressures beyond seasonal factors, citing anticipated taxation measures in the annual budget.”
