Inflation likely to hover around 24.5%-25.5% in February 2024: Ministry

February 29, 2024 (MLN): Inflation is projected to hover around 24.5%-25.5% in February 2024, with expectations of a further easing to 23.5%-24.5% in March 2024 despite the upward adjustment in transportation expenses and gas prices. The drop is mainly on the back of a decrease in the prices of perishable items on the back of better crops, ease in supplies, and the high base effect, according to the Monthly Economic Update & Outlook released by the Ministry of Finance on Thursday.

Meanwhile, the Food and Agriculture Organization's food price index, which tracks the most globally traded food commodities, averaged 118.0 points in January 2024 down by 1% from the December level as decreases in the price indices for cereals and meat more than offset an increase in the sugar price index, while those for dairy and vegetable oils only registered slight adjustments, it added.

At the same time, the estimations carried out by MG Research and other brokerage houses revealed that the headline inflation will settle at 23.3% YoY, the lowest level in 17 months.

 The monthly inflation is expected to rise 0.2% MoM, as compared to the last 12-month average of 2.11% MoM.

In February 2024, the administered prices of petrol and diesel increased in response to a notable surge in crude oil prices, highlighting the direct influence of global market dynamics on domestic fuel costs.

Similarly, favourable input situations are set to bolster Rabi crop production. On the other hand, industrial activity in December remained positive despite a specific sectoral slowdown.

Notwithstanding, restrictive monetary and fiscal policies, the optimism is fueled by improvements in cyclical conditions in Pakistan's export markets facilitating steady economic recovery.

The stabilization measures encouraging business confidence coupled with exchange rate stability, contribute to a positive economic outlook for Pakistan amidst ongoing challenges.

With regards to growth, the Finance Ministry expects Q2 FY2024 GDP growth to rise to around 3% on stronger manufacturing output and higher production of crops including cotton, which has increased by 75% to 8.35 million bales.

GDP growth accelerated to 2.1% in Q1 FY2024, after two consecutive quarters of negative growth. The growth was broad-based with the agriculture sector posting 5% growth and manufacturing activity registering 2.5% growth, it reads.

In particular, the removal of the import ban and other import restrictions have eased supply constraints, leading to a pick-up in economic activity. Data from Q2 FY2024 shows stronger performance of the manufacturing sector, with large-scale manufacturing posting an 8.2% increase over Q1.

As the new government takes office after the 8 February General Elections, expectations are that a vibrant strategy and vision would help revive the economy and build on the hard-earned gains made over the last six months, the report reads.

Last few months measures have restored market confidence and led to a pick-up in economic activity, it noted.

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