Pakistan’s inflation rate has outpaced Sri Lanka’s, becoming the fastest in Asia, as the rupee’s 20% drop against the dollar this year and rising food and energy costs drive up consumer prices.
According to a report published in Bloomberg on Tuesday, consumer prices surged 36.4% in April compared to the previous year, the highest increase since 1964. Data released by the Pakistan Bureau of Statistics on Tuesday revealed that transport prices skyrocketed by 56.8%, food inflation rose 48.1%, clothing and footwear costs increased 21.6%, and housing, water and electricity bills climbed 16.9%. In contrast, inflation rate eased to 35.3% in April for Sri Lanka, a regional neighbour facing similar economic woes.
According to Bloomberg, the Pakistani rupee’s weak performance in 2023 – one of the worst in the world – has made imported goods more expensive, further exacerbating inflation. The country’s inflation is expected to rise further after authorities increased taxes and fuel prices to meet the IMF’s requirements for a $6.5 billion loan revival. The bailout funds are essential for Pakistan to afford crucial imports and avoid defaults, but the IMF demands financing assurances before resuming aid.
Economist Ankur Shukla said he believes the State Bank of Pakistan (SBP) is unlikely to raise interest rates further, as real rates have turned positive on a 12-month forward-looking basis. He projected inflation will peak in May and gradually slow down as food prices cool and high year-earlier base effects kick in.
Last month, the SBP raised its benchmark interest rate to 21%, the highest level since 1956, in an attempt to control price pressures. The next monetary policy review is scheduled for June 12. Uzair Younus, a director at the Atlantic Council’s South Asia Center, told Bloomberg that recent data indicates the central bank’s optimism about inflation plateauing might be misplaced. Younus expressed concern about the rising food prices, stating that over four million citizens have fallen below the poverty line, and escalating food costs will cause “further generational trauma on countless households”.
