Ministry foresees inflation to hover around 27.5% to 28.5% in January

January 31, 2024 (MLN): Inflation is anticipated to remain around 27.5% to 28.5% in January 2024 and further ease out to 26.5% to 27.5% in February 2024 mainly on the back of the decline in fuel cost which offers a promising counterbalance and the high base effect, according to the monthly Economic Update and Outlook for January issued by the Ministry of Finance today. 

The Food and Agriculture Organization's food price index, which tracks the most globally traded food commodities, averaged 118.5 points in December 2023 down by 1.5% from the November level as decreases in the price indices for sugar, vegetable oils and meat more than offset increases in dairy products and cereals.

"In January FY2024, there is a slight moderation in the inflation outlook compared to the preceding month," the report reads. 

It is important to mention that the elevated prices of perishables and vegetables, coupled with increased utility costs (electricity and gas), have contributed to the inflationary pressure.

The surge in onion export orders following the Indian ban has strained local supply and increased domestic prices. Specific commodities, such as tomatoes, witnessed price hikes due to supply disruptions caused by severe weather, intensifying the demand-supply gap.

Similarly, chicken prices rose due to reduced supply, particularly from controlled sheds experiencing higher input costs.

However, the government has taken measures to reduce onion export by increasing the minimum export price and also lifted the ban on soybean import which would ease the supply situation of perishables and chicken.

The report also noted that the first half of FY2024 has ended with economic stabilization. The government's effective measures and prudent policies helped stabilize the macroeconomic situation, leading to a gradual improvement in economic activities.

It is apparent from better growth prospects in the real sector visible in MoM increase in LSM growth, an improvement in high-frequency indicators and better crop prospects. Despite the challenges, external stability has been observed as evident from a surplus in the current account in December.

On the fiscal side, the revenue performance is encouraging, however, there is significant pressure on expenditures attributed to higher markup payments.

Despite this, the government is taking measures to manage non-markup spending, which is evidenced by continuous improvement in primary surplus.

Pakistan has recently received a tranche equivalent to US$ 705.6 million, following the successful completion of the first review by the Executive Board of IMF under Stand by Arrangements (SBA) – which is providing market confidence and exchange rate stability.

Going forward, the report expects that economic activities will further strengthen during the second half of FY2024, contingent on the continuation of sound and prudent economic policies which will gear toward achieving the set growth target for the current fiscal year.

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