Govt Expects Inflation to Remain in Double Digits in the Coming Month

The government, on Thursday, stated that it expects the already high inflation to remain in double digits year-on-year (YoY) in the coming month.

The Economic Advisor’s Wing (EAW) of the Ministry of Finance, in its Monthly Economic Update & Outlook for January, noted that Pakistan’s inflation rate is still under pressure like other countries due to the rise in international commodity prices and economic agents’ expectations. The government is making all efforts to improve the functioning of markets, particularly in the food markets, it added.

It explained that the YoY increase in the Consumer Price Index (CPI) is, to a large extent, a backward-looking indicator. It is not only determined by current price movements but also by what happened 12 months ago, when international commodity prices were at the lower areas of their current price cycles, whereas now, they are at the upper levels of these cycles.

In its latest update, the EAW explained that what matters most is monitoring future month-on-month (MoM) price movements. Containing these price dynamics is the most relevant issue because they will determine further developments in the consumer’s cost of living, it said.

“Government measures, accompanied by the support of monetary policy, are directed to protect consumer’s purchasing power in the future. If these future MoM price movements can be stabilized, the YoY inflation will automatically fall back to levels that are suited for supporting Pakistan’s economic development. In that sense the current surge of the YoY inflation rate is a temporary phenomenon”, it added.

CPI inflation during July-December was recorded at 9.8 percent against 8.6 percent during the same period last year. The CPI recorded a decline of 0.02 percent on an MoM basis in December 2021 against an increase of 3.0 percent in November 2021, the report highlighted.

The report noted that Pakistan’s economy continues to show healthy value-added creation. Its cyclical position is largely balanced, and the trend growth rate of potential output remains strong. It added that this path is expected to continue, but several risk factors, including inflation, the surge of the omicron variant, and stress on the external balance remain present on the horizon.

The fiscal deficit during July-Nov FY2022 stood at Rs. 951 billion against Rs. 822 billion in the same period of last year. In terms of GDP, the fiscal deficit has been contained at 1.5 percent, the same level as in the comparable period of last year. Whereas primary balance posted a deficit of Rs. 36 billion (0.1 percent of GDP) during July-Nov FY2022 against the surplus of Rs. 216 billion (0.4 percent of GDP) last year.

The net provisional tax collection by FBR increased by 32.5 percent to reach Rs. 2,919.7 billion during the first half of FY2022 against Rs. 2,204.1 billion in the same period of last year. The net collection has exceeded the target of Rs. 2,633 billion by Rs. 286.5 billion. Total domestic tax collection, increased by 30.6 percent to Rs. 2,442.6 billion during July-Dec FY2022 as compared with Rs. 1,870.0 billion in the same period last year, the report said.

On the external side, the current account posted a deficit of $9.1 billion (5.7 percent of GDP) for July-December FY2022 due to the constantly growing import volume of energy and non-energy commodities. Moreover, the rising trend in the global commodities prices, especially oil, COVID-19 vaccines, food, and metals, built pressure on import bill. Exports on a free-on-board (FOB) basis grew by 29.0 percent during July-Dec FY2022 and reached $15.2 billion, while Imports on a FOB basis grew by 56.9 percent and reached $36.4 billion.

In July-December, foreign direct investment (FDI) reached $1,056.6 million, an increase by 20.1 percent over FDI of $879.7 million last year, the report said.