Inflation rises to whopping 21.3pc in June, highest in over 13 years

Web Desk – July 1, 2022 

Inflation, as measured by the Consumer Price Index (CPI), rose to 21.32 per cent in June, the highest in over 13 years, data shared by the Pakistan Bureau of Statistics (PBS) revealed on Friday.

Last month, inflation was recorded at 13.76pc. In June, inflation rose 6.34pc month-on-month (MoM) and 21.32pc year-on-year (YoY), which was the highest figure since December 2008 when inflation stood at 23.3pc.

According to the PBS, inflation increased by 19.84pc in urban areas and 23.55pc in rural areas.

Multiple sectors witnessed double-digit inflation but the trend was driven largely by transport, which saw a 62.17pc rise and perishable food items, prices of which increased by 36.34pc.

Other sectors in which inflation was measured in the double digits are:

  • Non-perishable food items (24.43pc)
  • Restaurants and hotels (21.85pc)
  • Furnishing and household equipment maintenance (18.76pc)
  • Alcoholic beverages and tobacco (17.6pc)
  • Miscellaneous goods and services (15.83pc)
  • Recreation and culture (14.35pc)
  • Clothing and footwear (13.72)
  • Housing and utilities (13.48pc)
  • Health (11.3pc)

Education and communication were the only two sectors where inflation was in the single digits at 9.46pc and 1.96pc, respectively.

The PBS press release, while detailing the rise in non-food-related commodities, showed that motor fuel, liquefied hydrocarbons and electricity charges saw massive increases year-on-year, with motor fuel prices rising by at least 95pc.

Tough times ahead

The finance ministry had earlier predicted that inflation would go beyond 15pc in the upcoming fiscal year, which began from July 1 (today).

“Despite achieving the growth of 5.97pc in FY2022, the underlying macroeconomic imbalances associated with domestic and international risks are making growth outlook indistinct,” said the ministry’s Economic Adviser’s Wing (EAW) in its Monthly Economic Update for June & Outlook.

At the same time, the EAW also warned that the State Bank of Pakistan’s (SBP) demand management policy was unlikely to be successful in the face of supply side constraints and higher international commodity prices and may further cause erode to income levels.

It said the delayed pass-through of international oil prices into domestic energy products was expected to increase inflation even though inflationary pressure may ease once international commodity prices start to decline and stabilise.

Going forward, Pakistan’s growth prospects are expected to remain satisfactory. But the number of potential risks may diverge it from optimal path. First, the cyclical position of Pakistan’s main trading partners is somewhat deteriorating. Their central banks are raising interest rates to counter inflation, thus leading to possible recession in those countries.

“Second, SBP may further raise domestic interest rates,” said the economic outlook, warning that SBP’s demand management policy may not be very effective as the current waves of inflation are largely caused by supply constraints and increasing international prices, especially commodity prices. “Exchange rate depreciation is also a source of concern as it makes the imported raw material more expensive,” it added.

Third, the persistent rise in domestic consumer prices is eroding real incomes, limiting the spending power of consumers and investors. “These risk factors may challenge the macroeconomic environment and growth prospects, especially by negatively affecting the temporary cyclical output gap.”

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