Pakistan’s Inflation Drops to 9-Year Low: Economic Recovery, IMF Support & Interest Rate Cuts
- Abeera Marium Siddiqui
- February 3, 2025
- 4:48 pm
- 33
- Current Affairs
Pakistan’s inflation drops to 9-year low, marking a major shift from the record highs of previous years. The Consumer Price Index (CPI) inflation rate fell to 2.41% year-on-year (YoY) in January 2025, as reported by the Pakistan Bureau of Statistics (PBS). This is the lowest inflation level in 111 months. In comparison, inflation stood at 4.1% in December 2024 and a staggering 28.3% in January 2024.
Inflation Trends and Economic Impact
Inflation has been steadily declining over the past months. The 7MFY25 average inflation rate is now 6.5%, a major drop from 28.73% in 7MFY24. Experts link this decline to a favorable base effect, currency stability, and lower food and energy prices.
The drop in inflation is seen in both urban and rural areas:
- Urban CPI inflation: Fell to 2.7% YoY in January 2025 (30.2% in January 2024).
- Rural CPI inflation: Declined to 1.9% YoY (down from 25.7% a year ago).
- Month-on-month (MoM) change: Inflation rose slightly by 0.2%, reflecting minor price adjustments.
Key Food and Non-Food Price Changes
Despite the overall decline, some essential goods remain expensive.
Urban Market Trends
- Food prices: Potatoes (+45.14%), gram flour (+44.72%), and pulse gram (+41.73%) saw the biggest YoY increases.
- Non-food prices: Motor vehicle tax (+168.79%), footwear (+31.88%), and medical services contributed to inflation.
- MoM increase: Chicken prices rose 35.26%, while sugar, fresh fruits, and cooking oil also became costlier.
Rural Market Trends
- Food prices: Potatoes (+49.32%), gram flour (+45.85%), and pulse gram (+45.24%) had the highest YoY hikes.
- Non-food inflation: Motor vehicle tax (+126.61%) and education costs (+23.41%) increased.
- MoM change: Chicken prices surged 33.02%, affecting household budgets.
Role of the IMF and Interest Rate Cuts
Pakistan’s economic recovery has been backed by a $7 billion IMF program that started in September 2024. The IMF’s next review is scheduled for March 2025, and officials are confident about meeting economic targets.
To further control inflation and boost economic growth, the State Bank of Pakistan (SBP) cut its key interest rate by 100 basis points to 12% last week. This follows sharp rate cuts from 22% in June 2024, making it one of the biggest monetary shifts in emerging markets.
However, core inflation remains a concern:
- Urban core inflation: 5.4% YoY.
- Rural core inflation: 5.4% YoY.
The SBP forecasts full-year inflation between 5.5% and 7.5%, signaling continued economic stabilization.
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