The Year on Year (YoY) CPI inflation for Pakistan clocked in at 8.2% for the month of May 2020, a 0.3% reduction from April 2020. The urban inflation has decreased by 0.4% to 7.3% in month of May compared to 7.7% in April. The inflation for similar month in 2019 was 8.5%.
The reduction in inflation was forecasted by analysts and finance ministry due to various factors. The spread of coronavirus and lockdown resulted in reduced inflation even during the month of Ramadan. Moreover, the consumer spending for non-essential items has reduced substantially due to economic uncertainty that is currently a global phenomenon.
Read More: Pakistan CPI inflation reduces in Ramadan for the first time in decades
However, due to Ramadan, the Inflation for Sensitive Price Indicator (SPI) increased to 11% in May 2020 compared to 9.3% in April 2020.
Another factor for lower inflation rate is low consumption of imported oil and restrictions on imported products which has reduced the imported inflation.
Pakistan now has the cheapest Fuel prices in South Asia
In a favorable economic move for masses yesterday, federal government announced reduction in petrol price by Rs. 7.06 per litre. The petrol prices have reduced from Rs. 81.58 to Rs. 74.2 per litre applicable from June 1. Similarly, prices for Kerosene Oil and Light Diesel Oil were reduced by Rs. 11.88 and Rs. 9.37 respectively.
The reduction in oil prices is another factor that has contributed to low inflation rates since March 2020. This has also resulted in reduction in fiscal trade deficit. During the first 10 months of the fiscal year, Pakistan’s service trade deficit has reduced by 33% mainly due to contraction in import bills.
This has lowered the corona virus led burden on Pakistan’s external account and covered for global trade blockage which affected exports of Pakistan negatively.