Inflation decelerates to 17.3% in April 2024

Overview

In April 2024, the National Consumer Price Index (NCPI) in Pakistan slowed down further, registering a year-on-year (YoY) inflation rate of 17.3%, along with a month-on-month (MoM) decrease of 0.4%. This figure was lower than expected and contributed to an increase in the real interest rate to 490 basis points, reinforcing the case for potential monetary easing in the coming period.

Key Highlights

• Year-to-Date Comparison: The NCPI for the first ten months of the fiscal year (10MFY24) now stands at 26.2% YoY, showing a decrease from 28.1% YoY recorded during the same period last year (SPLY).
• Major Contributors to Decline: The decline in the NCPI was primarily driven by a 2.4% MoM decrease in the Food segment, which holds the highest weightage of 35% in the index. Non-perishable and perishable food items experienced notable drops of 1.4% MoM and 7.3% MoM, respectively, with prices of wheat, eggs, and vegetables leading the downward trend.
• Utilities & Housing Segment: This segment, accounting for 24% of the NCPI, also saw a MoM drop of 1.8% in prices, mainly due to the expected decline in electricity charges.
• Rural vs. Urban Inflation: In April, inflation in rural areas plummeted to 14.5% YoY (from approximately 19% YoY in March), while urban areas experienced a slightly higher inflation rate of 19.4% YoY. Core inflation in urban areas increased marginally to 13.1% YoY, whereas it declined in rural areas to 19.3% YoY.
• Other Indices: The Sensitive Price Index (SPI) and Wholesale Price Index (WPI) also exhibited declines in April, with YoY rates of 21.6% and 13.9%, respectively, down from 25.9% and 14.8% in March.

Factors Driving the Decline:

The decline in the index was primarily influenced by a 2.4% MoM decrease in the Food segment. Within this segment, both non-perishable and perishable food items experienced notable drops of 1.4% MoM and 7.3% MoM, respectively, contributing to the overall decrease. Notably, food items carry the highest weightage of 35% in the NCPI. Wheat, Eggs, and Vegetable prices were significant contributors to this decline.

Additionally, the Utilities & Housing segment, which holds the second-highest weightage at 24% in the NCPI, also experienced a MoM drop of 1.8% in prices. This was primarily due to the expected decline in electricity charges.

Urban vs. Rural Disparities:

Geographically, there were significant disparities in inflation rates between Urban and Rural areas. NCPI fell drastically in Rural areas, arriving at 14.5% YoY, compared to 19% YoY in March 2024. In Urban areas, headline inflation stood at 19.4% YoY in April 2024. Moreover, core inflation saw a marginal increase in Urban areas, clocking in at 13.1% YoY, while Rural areas experienced a slight decrease to 19.3% YoY.

SPI and WPI Trends:

The Sensitive Price Index (SPI) and Wholesale Price Index (WPI) both witnessed declines, with SPI at 21.6% YoY and WPI at 13.9% YoY, compared to 25.9% YoY and 14.8% YoY, respectively, in March 2024.

Outlook

Based on current trends, we anticipate that headline inflation for fiscal year 2024 will be around 24.8% YoY, followed by a significant decrease to approximately 11.6% YoY for fiscal year 2025, creating substantial room for potential rate cuts.

Category	Weight (%)	Apr-24	Mar-24	Apr-23	MoM (%)	YoY (%)
Food & non-alcoholic beverages	35	286.4	293.4	261.2	-2.4	9.7
Alcoholic beverages, etc.	1	366.1	365.8	354.2	0.1	3.4
Clothing & footwear	9	238.4	228.1	200.2	4.5	19.1
Housing, utilities, etc.	24	239.8	244.2	176.8	-1.8	35.7
Furniture & household equipment	4	266.4	265.5	226.2	0.4	17.8
Health	3	237.3	236.7	200.1	0.3	18.6
Transport	6	320.3	311.5	284.7	2.8	12.5
Communication	2	134.9	134.8	117.8	0.0	14.5
Recreation & culture	2	258.8	256.7	231.4	0.8	11.8
Education	4	196.2	187.5	170.0	4.6	15.4
Restaurants & Hotels	7	269.4	266.4	225.5	1.1	19.5
Miscellaneous	5	282.2	276.8	236.1	2.0	19.5
General	100	263.3	264.5	224.4	-0.4	17.3

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Disclaimer:

The information in this article is based on research by SECP. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.