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Inflation clocks in at 13.8% in May

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  • Increase comes on back of a surge in prices of non-perishable food items.
  • On a month-on-month basis, inflation increased by 0.4% in May.
  • Cumulatively, 11MFY22 average inflation reached 11.29% year-on-year.

KARACHI: The inflation rate, based on the Consumer Price Index (CPI) in May clocked in at 13.8% on a year-on-year basis — the highest since January 2020 — due to a surge in prices of non-perishable food items.

The CPI accelerated in May over the same month a year ago, showed the inflation bulletin released by the Pakistan Bureau of Statistics (PBS) on Wednesday. The index remained higher in line with the trend since the last three months.

The new coalition government of Prime Minister Shehbaz Sharif struggles to contain inflation, which experts said, was the outcome of record-high global commodity prices, and a 26% devaluation of the Pakistani rupee since the start of the outgoing fiscal year.

On a month-on-month basis, inflation slowed down as it clocked in at 0.44% in May 2022 compared to an increase of 1.6% in the previous month and an increase of 0.1% in May 2021. Cumulatively, 11MFY22 average inflation reached 11.29% year-on-year compared to 8.83% in 11MFY21.

The CPI-based inflation rate jumped 12.4% in urban areas and 15.9% in villages and towns, according to PBS.

Speaking to Geo.tv, an analyst from Arif Habib Ltd, Sana Tawfiq, said that the inflation rate was below the market expectation of 14.3%.

“An increase came on the back of three sectors — food, transport, and housing and electricity,” she said.

Tawfiq elaborated that an increase in food group month-on-month was in line with expectation, citing poultry items and wheat as major drivers.

The analyst was of the view that the impact of a significant increase in the price of petroleum products was partially reflected in May’s inflation rate; however, the complete impact would be seen in June’s number.

The inflation rate remained in double-digit — which has eroded the people’s purchasing power — due to an increase in the prices of food items, which are now taxed by the government. The pace of food inflation surged 15.5% in cities and 19% in villages and towns last month.

The prices of both non-perishable and perishable food products increased significantly last month. The food group saw over a 17% increase in prices in May compared to the same month a year ago. Prices of perishable food items increased 26.37%, according to the PBS.

Non-food inflation increased 10.4% in urban areas and 13.1% in rural areas, according to the national data collecting agency.

Core inflation — calculated after excluding food and energy goods — jumped 9.7% in urban areas and 11.5% in rural areas. Tawfiq maintained that a continuous increase in core inflation is a “major concern.”

The prices of tomatoes — an essential kitchen item — were higher by 162.22% last month compared to a year ago, followed by a 153.44% increase in the rates of onions, and around 60% of various types of ghee and cooking oil, according to the PBS.

The prices of pulses increased by over 50%, wheat by 18.42%, and meat and vegetables by nearly one-fourth and vegetables, according to the PBS.

“Going forward, the inflation rate would remain under pressure and in double digits for the next three months; it would start easing from September onwards,” the analyst said.

Regarding the monetary policy rate, scheduled to be announced on July 7, she noted that the central bank is expected to raise the policy rate by another 100-150 basis points.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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Provinces must inform IMF team of the postponed legislation for 45% agricultural tax.

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The visiting International Monetary Fund (IMF) delegation is scheduled to meet with provincial government leaders today to examine progress in implementing a tax on agricultural income of up to 45% and discuss the execution of other fiscal policies.

The agricultural income tax was to go into effect on January 1, 2025, after the provincial governments were given until October 31 to pass the necessary legislation. Nevertheless, the deadline was missed by every single province.

Rumor has it that neither Sindh nor Balochistan have moved forward with the tax on agricultural income bill, despite approval from the Punjab government and a draft being developed in Khyber Pakhtunkhwa.

All four provinces have signed the National Fiscal Pact as per the conditions set by the IMF. The reason(s) for the delays will be explained to the IMF delegation.

Federal spending on things like healthcare, social security, and regional infrastructure development is expected to be transferred to the provinces under the IMF agreement, according to sources from the Ministry of Finance. Provincial governments have been singled out by the IMF delegation as key players in tax and economic reform efforts.

Reviewed Here: FBR Excludes Mini-Budget and GST on Petrol from IMF Negotiations

The provincial budget surplus targets will also be briefed to the IMF delegation, according to the sources. The four provinces were supposed to achieve a total surplus of Rs342 billion in the first quarter, but they only managed to manage Rs182 billion. A large portion of the deficit was caused by the Rs160 billion budget deficit in Punjab.

The government’s pledge to retain the annual tax target of Rs12,970 billion was reaffirmed by the Federal Board of Revenue (FBR) on Wednesday, who also confirmed that no mini-budget will be implemented.

In line with continuing discussions with the IMF, FBR sources have also said that petroleum goods will not be subject to the General Sales Tax (GST).

According to sources, the International Monetary Fund has voiced its approval of Pakistan’s recent economic performance, highlighting the country’s improved fiscal policies, which have led to a 1.5% increase in the tax-to-GDP ratio, from 8.8% to 10.3%.

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Petrol prices are expected to experience another increase in Pakistan.

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The inflation-affected nation is expected to encounter another increase in petrol prices, with recommendations indicating a rise of Rs. 2.58 per litre for petrol and Rs. 5.91 per litre for high-speed diesel.

Sources indicate that, if sanctioned, petrol prices will ascend to Rs. 250.96 per litre, whereas high-speed diesel will be priced at Rs. 261.05 per litre.

Sources indicated that the suggested increase is due to the elevated premium on petroleum products in the worldwide market and rising import expenses.

The premium on imported petroleum products has increased, leading the government to contemplate pricing modifications effective November 16, sources indicated.

On October 31, the federal government published the prices of petroleum products for the upcoming fortnight, increasing the prices of petrol and high-speed diesel.

A notification announced an increase in petrol price by Rs 1.35, raising it to Rs 248.38 a litre. The price of high-speed diesel was fixed at Rs 255.14 per litre after an increase of Rs 3.85.

Also read: Pakistan’s weekly inflation jumps to 15.02pc

Simultaneously, the costs of light diesel and kerosene oil were reduced. The statement states that kerosene oil is priced at Rs 148.5 per litre following a reduction of Rs 4.92.

The cost of light fuel was reduced by Rs 2.61 to Rs 147.51 per litre.

The rampant hike in the prices came at the time when the weekly inflation, measured by the Sensitive Price Indicator (SPI), witnessed an increase of 0.28 percent for the combined consumption groups during the week ended on October 17, the Pakistan Bureau of Statistics (PBS) reported.

According to the PBS data, the SPI for the week under review in the above-mentioned group was recorded at 319.79 points as compared to 318.91 points during the past week.

In comparison to the same week last year, the SPI for the combined consumption group during the reviewed week experienced a 15.02 percent increase.

The weekly SPI with the base year 2015-16 =100 covers 17 urban centres and 51 essential items for all expenditure groups.

Likewise, SPI for the lowest consumption group of up to Rs 17,732 witnessed increase of 0.27 percent and went up to 313.74 points from last week’s 312.91 points.

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