Inflation Rate in Pakistan
The government of Pakistan has announced that the inflation rate for the last fiscal year was 4.5%, which is lower than the expected target of 12%. This decrease in inflation rate is mainly due to a slump in food prices.
What does this mean for the economy?
The low inflation rate reinforces the view that the central bank’s decision to maintain high interest rates was unnecessary and excessive. The central bank has kept the interest rates at 11%, which is higher than the average inflation rate for the year. This high interest rate has benefited commercial banks but has hurt businesses and the government, which spends a significant amount on interest payments.
Impact on the Government’s Budget
The government has allocated Rs8.2 trillion for debt servicing, which is 46% of the approved budget for the current fiscal year. This includes Rs7.2 trillion for domestic debt servicing, which is going to the banking sector as guaranteed profits. Experts suggest that reducing the interest rates from 11% to 6% could generate immediate savings on the majority of debt stock.
Inflation Rate in Rural and Urban Areas
The average inflation rate in rural areas was 3.3%, while in urban areas it was 5.3%. The annual inflation rate eased to 3.2% in June, which is in line with the Finance Ministry’s projection.
Core Inflation
Core inflation, which excludes energy and food items, has eased in both cities and towns. The rate slowed down to 6.9% in cities and 8.6% in rural areas. Urban annual inflation eased to 3% and slightly accelerated to 3.6% in rural areas last month.
Food Prices
Food prices have decelerated after picking up pace a month earlier. The food inflation rate in cities slowed down to 4.2% but slightly increased to 2.4% in rural areas. Sugar prices jumped one-fourth last month compared to a year ago, while eggs became expensive by 25%, milk powder by 22%, and meat by 11%.
Conclusion
In conclusion, the low inflation rate in Pakistan is a positive sign for the economy, but the high interest rates are still a concern. The government needs to review its monetary policy and consider reducing the interest rates to stimulate economic growth and reduce the burden of debt servicing. By doing so, the government can save a significant amount of money and allocate it to other important sectors, such as education and healthcare. This could have a positive impact on the overall economy and help Pakistan achieve its development goals.
