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Pakistan inflation stays high at 27.4% as IMF reforms kick in

Published 09/01/2023, 08:26 AM
Updated 09/01/2023, 10:46 AM
© Reuters. A labourer stacks sacks of sugar outside a shop at a wholesale market in Karachi, Pakistan June 9, 2023. REUTERS/Akhtar Soomro/File photo

By Ariba Shahid and Gibran Naiyyar Peshimam

KARACHI, Pakistan (Reuters) -Pakistan's inflation rate stayed above target at 27.4% in August, data showed on Friday, as reforms set out as conditions for an IMF loan complicate the task of keeping price pressures and declines in its rupee currency in check.

The South Asian nation is embarking on a tricky path to economic recovery under a caretaker government after a $3 billion loan programme, approved by the International Monetary Fund (IMF) in July, averted a sovereign debt default.

Reforms linked to the bailout, including an easing of import restrictions and a demand that subsidies be removed, have already fuelled annual inflation, which rose to a record 38.0% in May. Interest rates have also risen, and the rupee hit all-time lows. Last month the currency fell 6.2%.

The August data from Pakistan's statistics bureau showed a slight easing from July's 28.3% inflation rate, but food inflation remained elevated at 38.5%.

Authorities also raised petrol and diesel prices to record highs on Friday.

The worsening economic conditions, along with rising political tensions in the run-up to a national election scheduled for November, have triggered sporadic protests.

Jamaat-e-Islami, an Islamist opposition party, has called for a countrywide strike on Saturday in response to higher power tariffs.

Ordinary Pakistanis say they are struggling to make ends meet.

Bank employee Waseem Ahmed, speaking at a petrol station in Islamabad, said the middle classes were being crushed.

"More than 60 to 70 percent of my salary is spent on bills and petrol. Where will we get basic staples from? This is why people are contemplating suicide," he told Reuters.

Mohammed Sohail, CEO of Topline Securities, a Karachi-based brokerage firm, said August's inflation reading was in line with expectations.

But the falling rupee and rising energy prices meant that "we may not see a big decline in inflation year on year as was expected earlier," he added.

© Reuters. A labourer stacks sacks of sugar outside a shop at a wholesale market in Karachi, Pakistan June 9, 2023. REUTERS/Akhtar Soomro/File photo

He was referring to government projections that inflation will fall to 22% by the end of the fiscal year that runs to June 31.

Pakistan's central bank said in its last monetary policy statement in July - when it held benchmark interest rates likewise at 22% - that it expected inflation to remain on a downward path over the following 12 months.

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