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Alarms raised as food prices push CPI inflation to record 38% in May

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  • Inflation clocks in 1.6% on month-on-month basis.
  • AHL says reading takes 11MFY23 average inflation to 29.2%.
  • Pakistan’s inflation outstrips Sri Lanka’s annual rate of 25.2% in May.

The consumer price index (CPI)-based inflation rate in Pakistan surged to a record 38% on a year-on-year (YoY) basis in May 2023, the highest since July 1965 — barring a few years in between due to the non-availability of monthly records).

Pakistan Bureau of Statistics (PBS) data showed that CPI-based inflation hit 36.4% in April 2023, while it increased 1.6% in the month of May month-on-month (MoM).

“This reading takes 11MFY23 average inflation to 29.2% compared to 11.3% in 11MFY22,” brokerage Arif Habib Limited noted in a report.

The food inflation in urban areas jumped by a whopping 48.1% in May 2023 compared to May 2022, while the rural areas saw a 52.4% increase in consumer prices year-on-year.

Arif Habib Limited Economist Sana Tawfiq, while noting that inflation reached record levels, stated that on a month-on-month (MoM) basis “inflation clocked-in higher, up 1.6%”. 

The analyst told Geo.tv that the MoM jump was primarily due to high food prices, household items and clothing. 

She added that core inflation continues to rise and crossed 23% YoY during the outgoing month.  

“We expect headline numbers to recede from June onwards with base-effect kicking in. However, domestic food and energy prices as well as further currency devaluation remain key risks to the overall inflation,” Tawfiq warned. 

The latest 38% rise tops that of Sri Lanka, which posted annual inflation of 25.2% in May.

Inflation has been on an upward trend since early this year after the government took painful measures as part of fiscal adjustments demanded by the International Monetary Fund (IMF) to unlock stalled funding, which still has not been disbursed.

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Prior to the budget address, the PSX-100 index rebounds following a continuous fall for 7 straight days.

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The Pakistan Stock Exchange rebounded after a continuous decrease of 7 days and surpassed the threshold of 73,000 points, experiencing a surge of more than 500 points in the benchmark.

The PSX Tuesday experienced a decline of more than 650 points, potentially due to tax measures being considered in the federal budget for the fiscal year 2024-25.

The investors are concerned about the State Bank of Pakistan (SBP) reducing the interest rate, as well as the unresolved circular debt, which has increased to over Rs5.3 trillion.

The KSE-100 index concluded the day with significant losses, at its lowest point.

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Pakistan experiences substantial expansion in the information technology sector.

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Pakistan experienced significant development in the exports of its IT sector, reaching a total of $2.283 billion, as stated in a recent Economic Survey Report.

The increase in exports emphasized the rising global demand for IT services from Pakistan and the sector’s impact on the national economy.

The survey demonstrated that IT freelancers contributed $35 million in remittances, highlighting their significance in the IT industry.

The study data indicates a significant rise in the number of broadband and telecom customers nationwide, with broadband users reaching 135 million and telecom users growing to 194 million.

Earlier this week, the federal government has suggested a substantial 357 percent rise in the budget for the IT sector for the fiscal year 2024-25.

As to reliable sources, the Ministry of IT has been granted a budget of Rs 27.43 billion in the development budget, out of which Rs 6.28 billion has been allotted for the implementation of 15 new projects.

The government has additionally suggested allotting Rs 21.15 billion for projects that are currently in progress, as well as Rs 3.5 billion for the Digital Economy initiative.

Additional noteworthy allocations consist of Rs 1 billion for fostering innovation in the IT sector, Rs 50 million for the digitalization of the national assembly, and Rs 300 million for the implementation of smart office projects in government ministries.

The government has additionally suggested investing Rs 9.92 billion for the Islamabad Technology Development Park and Rs 6.78 billion for the creation of an IT park in Karachi. The budget additionally comprises a proposition for an allocation of Rs 1 billion for the Cybersecurity Fund for the Digital Pakistan initiative.

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Pakistan will unveil its Rs18 trillion budget today.

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The budget will be presented by Senator Muhammad Aurangzeb, the Federal Minister for Finance and Revenue, on the floor of the National Assembly.

The government sources stated that the budget will focus on alleviating the hardships faced by the people, revitalizing the agriculture sector, advancing information technology (IT), and enhancing exports.

The administration asserted that the budget will encompass not only fiscal management and revenue mobilization, but also measures for economic stabilization and growth, reduction in non-development spending, job creation, and people-friendly policies aimed at achieving socioeconomic prosperity for the country.

The preparations for the announcement of the federal budget for fiscal year 2024-25 are progressing actively and in accordance with the specified dates.

The budget is being formulated through extensive collaboration among all the departments and ministries responsible for budget-related activities, encompassing the presentation of the budget before Parliament and the initiation of the Economic Survey.

It is important to note that the budget is being presented while Pakistan is in discussions with the International Monetary Fund (IMF) for a potential package of up to $8 billion.

Finance Minister Muhammad Aurangzeb presented the Economic Survey of Pakistan 2023-24 on Tuesday. According to the survey, the country’s gross domestic product (GDP) grew by 2.38 percent, surpassing the projected objective of 2 percent.

During the launch event of the Economic Survey of Pakistan 2023-24, Federal Minister for Finance Senator Muhammad Aurangzeb stated that despite difficulties, the country has made substantial advancements in attaining macroeconomic stability. Notably, there has been a remarkable 30 percent increase in revenue collection, a decrease in the current account deficit, a reduction in inflation, and a stable currency.

The finance minister stated that this position demonstrated a significant reversal from a fragile economic state, marked by a 0.2% fall in GDP, a 29% devaluation of the rupee, and a reduction in foreign exchange reserves, which had decreased to a level sufficient to cover only two weeks of imports.

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