Inflation is a significant economic indicator explaining how prices of goods and services have increased over the period of time. The significance of inflation rate can be gauged from its ability to determine how cost of living of population will be affected in near future due to changes in prices of goods and services. The inflation rate in Pakistan is usually cost-push inflation. A cost push inflation refers to increase in prices of goods and services based on increased cost of production due to rupee devaluation and thus, high cost of imports or increased energy prices that in turn raise domestic cost of materials. Indicators like inflation rate are specifically sensitive for countries like Pakistan where more than 29% of population lives below poverty line and increase in inflation can directly affect their access to basic necessities.
Different Types of Inflation
There are three major measures of inflation:
- Consumer Price Index (CPI)
- Sensitive Price Index (SPI)
- Wholesale Price Index (WPI).
CPI refers to the increase in general prices for selected goods and services in a country and is measured using data for both food and non-food items from 40 main urban centers of Pakistan. WPI measures price changes for food and non-food items that are sold in wholesale markets as bulk products. Lastly, the Sensitive Price Index measures inflation of goods that are essential and termed as necessities for population and is calculated on weekly basis as prices are changed on daily basis for items.
CPI is Most Common Measure of Inflation in Pakistan
In Pakistan, the most commonly measure of inflation used is CPI while changes in WPI take time to record. Generally, changes in price of wholesale items determine changes in CPI and since CPI consists of finished products, the prices are easy to record and update. SPI presents a more frequent view of changes in prices of food and non-food items that are daily necessities of masses like oil, vegetables, fruits, sugar, tea, poultry, fertilizer and gives similar weightage to food items (2/3rd) as CPI and WPI, however, the prices are recorded on weekly basis which hinders its ability to provide a long term view in economic analysis.
Who measures Inflation rate in Pakistan?
The data for inflation rate is collected and presented by Pakistan Bureau of Statistics (PBS) on weekly, monthly and yearly basis. The data is also available with multiple sources like State Bank of Pakistan (SBP). PBS collects weekly, monthly and yearly data for prices of goods and services and releases CPI data for 139 items and SPI for 53 items both food and non-food items.
CPI Inflation Rate in Pakistan
The graph below shows the Consumer Price Index (CPI) which is the most commonly used indicator for inflation in Pakistan for period 1960-2020.
Pakistan Inflation Rate 1960 to 2020 Table View
Pakistan Inflation Rate 1960-1979
The graph for inflation shows a stable pattern of inflation in the country with relatively low inflation figure from 1960 till 1972. In 1962, the inflation was even negative given the growing industrial state of Pakistan, contribution of private industries and companies that were booming and contribution of East Pakistan (Now Bangladesh) in exports. The separation of East Pakistan in 1971 gave a major hit to the economic growth of country along with the oil crisis of 1973 with Saudi-Israeli war, increasing the inflation of Pakistan to 23% in 1973 and 26% in 1974. Later under Bhutto’s regime, Pakistan moved towards nationalization that slowed industry’s growth and thus, the inflation rates although stabilized to around 7%-10% yet did not achieve previous lows.
Pakistan Inflation Rate 1980-2000
There is a decline in inflation rate after Bhutto’s era as Zia-ul-Haq took over the government and deregulated the industries and made Pakistan, the fastest growing economy in South Asia. Despite tensions on diplomatic front due to Soviet War and India, Pakistan’s industry became strong reducing its inflation rate from around 11.9% in 1980 to 8% in 1988. From 1990 to 2000, the inflation rate remained high yet stable around 9% to 11% as the government remained unstable amid political crisis and corruption. The inflation rate gained strength during 1998 and came down to 6% in 1998.
Pakistan Inflation Rate 2000-2020
The tenure of Musharraf after 1999 economically proved to be stable for Pakistan as with deregulation of industries and foreign investment, the economy regained some strength. In 2000 the inflation rate stood at 4.37% and remained stable till 2007 when Musharraf’s government left following death of Benazir Bhutto. During the PPP era, under the weight of corruption, high energy prices, increasing imports and declining exports,
Pakistan again saw surge in inflation rate from a high of 20.2% in 2008, 13% in 2009 and 11.9% in 2012. The last tenure of Nawaz Sharif from 2013 to 2018 saw rather stable and lower inflation rates, given the external loans, CPEC, low energy prices and stable exchange rate. The inflation rate remained low with 7.69% in 2013 and 5% in 2018. Since 2018, there is again a surge in inflation rate under PTI government as the inflation touches 10 year high of 14% in January 2020.
Pakistan Inflation Rate in 2020—the Way Forward
After witnessing a decade high of 14.6% CPI in January, the CPI eased around 12% in February. There is a slowdown in growth rate of Pakistan during the tenure of PTI government and a further drop is expected as government pushes for new policies regarding taxation, imports, rupee valuation and growth in the large scale manufacturing sector.
However, there is a lot more to look forward to in future as government is moving in positive direction towards several factors that caused high inflation. The prices of fertilizers are already dropped by significant rates by major firms like Engro as government reduced GIDC on fertilizer and reduce the amount owed by fertilizer firm in its levy. Moreover, the stable exchange rate and new LNG contracts will reduce cost for fertilizer firms which will positively affect cost of food items associated with urea.
Also, the power costs are expected to benefit greatly from the new hydro and alternate energy of government as it will reduce dependence on furnace oil and thus, reduce import costs. This reduced cost of imports along with the government’s efforts to reduce imports and promote large and small scale manufacturing, can significantly affect the inflation rate in future.
Update: The Inflation rate for Pakistan has dropped significantly to 8.2% as of June, 2020. The main reasons can be attributed to free fall of oil prices which led to lower imported inflation and significant drop in import bills. The impact of reduced oil prices was reflected in decline in petrol and other commodity prices.