Economists attribute the sharp decline in inflation to the base effect       Women check rice prices at a wholesale market in Karachi in this picture taken on January 10, 2023. — AFP

ISLAMABAD: Pakistan’s benchmark monthly inflation rate, as measured by the Consumer Price Index (CPI), slipped for the fifth consecutive month, settling at 11.8 percent year-on-year in May 2024 — the lowest since November 2021.

The Pakistan Bureau of Statistics (PBS) reported Monday that food inflation, which holds over one-third weightage in the CPI basket, turned negative. It is also notably lower than April 2024’s 17.3 percent.

Economists attribute the sharp decline in inflation to the base effect. They credit the government’s policy of non-procurement of wheat from farmers and imports of four million tons of wheat, exceeding the permitted 1 million tons, for the significant decline in grain prices. Wheat, being a staple, holds a major share in food inflation, thereby exerting downward pressure on general inflation.

CPI for May 2024 signifies a significant decrease from the multi-decade high of 38 percent recorded in May 2023. May’s CPI reading is also the lowest since May 2022, when it stood at 13.8 percent. On a month-on-month basis, CPI decreased by 3.2 percent in May 2024, compared to a decrease of 0.4 percent in April and an increase of 1.6 percent in May 2023.

Furthermore, core inflation, which excludes food and energy costs, moderated to 12.3 percent in May 2024 from 20 percent in May 2023. In April 2024, it was at 13.1 percent. The decline in general and core inflation rates presents a compelling argument for the central bank to consider revising its discount rate, which has remained at a record high of 22 percent for the last many months.

After 37 months in negative, the real interest rate (current interest rate minus inflation) turned positive since March 2024. In April, it remained positive at 4.7 percent and now in May, the real interest rate is at 10.2 percent.

In urban areas, inflation dropped to 14.35 percent from the previous month’s 19.4 percent and the corresponding month last year’s 35.1 percent. Rural inflation decreased to 8.17 percent from April 2024’s 14.5 percent and May 2023’s 42.18 percent.

Notably, for the first 11 months of the fiscal year (July-May 2023-24), average inflation stood at 24.52 percent against 29.16 percent in the same period of the last fiscal.

The Wholesale Price Index (WPI), indicating producer prices, increased by 9.9 percent in May 2024 compared to 13.9 percent in April and 32.8 percent in May 2023. The Sensitive Price Indicator (SPI), tracking essential item prices weekly, recorded at 15.3 percent against April 2024’s 21.6 percent.

Inflationary deceleration in key sectors was evident in May, with notable shifts in prices. Food and non-alcoholic beverages experienced a decrease of 0.17 percent, contrasting sharply with the 9.7 percent increase in the previous month. Housing and utilities moderated to 33 percent from 35.7 percent, while Leisure and Cultural Affairs expenses decreased to 7.96 percent from 11.8 percent. Similarly, homecare maintenance costs decreased to 13.75 percent from 17.78 percent, and communication charges dropped to 13.5 percent from 14.47 percent in April 2024.

Additionally, clothing and footwear prices increased by 18 percent in May, slightly lower than the 19.1 percent in April, and transport costs rose by 10.4 percent compared to 12.5 percent previously. Restaurants and hotels also saw a decrease to 13.7 percent from 19.5 percent in the previous month.

Conversely, health expenses increased to 19.4 percent from 18.6 percent in April 2024, and education expenses rose to 15.95 percent from 15.4 percent previously.

According to PBS data, various commodities experienced significant fluctuations. Potatoes saw a notable increase of 14.7 percent, followed by meat at 4.1 percent, beans at 3.9 percent, eggs at 1.6 percent, vegetable ghee at 1.27 percent, cooking oil at 1.26 percent, and pulse mash increased by 1.06 percent.

In the non-food segment, dental services charges increased by 14.6 percent, doctor clinic fees by 5.5 percent, transport services by 3.35 percent, hospital services by 2.7 percent, textbooks by 2.3 percent, medical tests by 2.03 percent, stationery by 1.68 percent, drugs and medicines by 1.07 percent, and education by 1.01 percent.

Conversely, some items witnessed price decreases, including tomatoes by 51.2 percent, onions by 51 percent, chicken by 35.3 percent, wheat by 22 percent, wheat flour by 20 percent, fresh fruits by 8 percent, vegetables by 7.7 percent, wheat products by 4.1 percent, pulse masoor by 2.5 percent, condiments and spices by 2.48 percent, rice by 2.4 percent, and readymade food prices decreased by 1.72 percent over the previous month.

In the non-food sector, prices of liquified hydrocarbons reduced by 9.45 percent, electricity charges by 4.5 percent, motor fuel by 3.2 percent, and communication apparatus prices by 2.35 percent.