The inflation rate dropped to 8.4 percent in July, despite a double-digit increase in the costs of key household goods, gasoline, and electricity, as well as the possibility of a jump in imported inflation due to an Rs10 drop in the rupee’s value against the US dollar in only two months.
According to the Pakistan Bureau of Statistics (PBS), the Consumer Price Index (CPI) raised by 8.4 % in July compared to the same month a year earlier. Despite huge increases in product costs that affect all households, it was the lowest rate of inflation in the previous nine months.
The national data collection agency recorded a 32.9 percent increase in vegetable ghee prices, a 33 percent increase in mustard oil costs, and a 31.7 percent increase in cooking oil prices, which impacted every family negatively. Similarly, the PBS recorded a 21.7 percent increase in power costs and a 16.4 percent increase in gasoline prices in July compared to the previous year.
The rise coincides with the rupee’s worst drop in two months, with the currency closing at Rs163.67 to the dollar on Monday. On May 3rd, the rupee was trading at Rs 153.36 to the dollar, a loss of Rs10.31 or 6.7% in just two months.
The fall in the value of the rupee raises the cost of every imported item, including wheat, sugar, cooking oil, crude oil, and industrial raw materials.
The Wholesale Price Index (WPI), which measures wholesale prices, increased 17.3% in July compared to the same month last year. Retail market prices often reach wholesale price levels in four to six months, indicating that prices will stay high in the short run.
The government has set an average inflation target of 8.5 percent for the current fiscal year, implying that year-on-year inflation may remain in the double digits in the fiscal year 2021-22.
According to the PBS, the general inflation rate has reduced in both urban and rural areas. In July, the urban inflation rate was 8.7%, while the rural inflation rate prevailed at 8% compared to the same month last year.
But, according to PBS, egg prices rose by a quarter in July, followed by a 23 percent rise in sugar costs and a roughly 15 percent rise in wheat flour prices. Last month, butter and milk costs increased by 13.8%.
The majority of price increases were caused by changes in taxation policy in the budget, a rise in commodity prices in the international market, and a decline in the value of the rupee.