March Inflation Jumps to 35.37%, Highest Since 1965: Analysis and Implications

Pakistan Records Highest Inflation Since 1965 at 35.37% YoY in March 2023: Insights and Analysis

On Saturday, the Pakistan Bureau of Statistics (PBS) released its latest data, revealing that the country's inflation rate, measured by the Consumer Price Index (CPI), had hit an all-time high of 35.37% year-on-year (YoY) in March 2023. This marks the highest CPI increase since July 1965, as reported by the investment firm Arif Habib Corporation.

The current inflation rate stands in stark contrast to March 2022 when it was recorded at 12.72%. According to the PBS, prices in both urban and rural areas increased significantly, with a YoY increase of 32.97% and 38.88%, respectively.

The Sensitive Price Indicator (SPI) recorded a short-term inflation rate of 46.65%, while the monthly inflation rate measured by the CPI reached 31.6% in February, the highest in six decades.

The rise in inflation has been driven by the sharp increase in consumer prices over the past few months. Annual inflation has remained above 20% since June 2022. The PBS data revealed that the following index-wise increases in inflation were recorded YoY: transport (54.94%), alcoholic beverages and tobacco (47.15%), recreation and culture (50.59%), perishable food items (51.81%), non-perishable food items (46.44%), restaurants and hotels (38.49%), furnishing and household equipment maintenance (38.99%), miscellaneous goods and services (34.43%), health (18.46%), clothing and footwear (21.93%), housing and utilities (17.49%), education (7.18%), and communication (6.64%).

In its Monthly Economic Update & Outlook report, the finance ministry warne

d that inflation is expected to rise further due to the second-round effect of policy decisions made earlier to raise energy and fuel prices, the central bank’s policy rate, and the rupee’s depreciation to secure IMF funding. The ministry's Economic Adviser’s Wing acknowledged the authorities' inability to contain the inflationary spiral and attributed the challenge to demand pressures associated with Ramadan.

The ministry warned that bulk buying during Ramadan may cause a demand-supply gap, leading to an escalation of essential item prices. The government has already taken measures to ensure a smooth supply of essential items, working closely with all provincial governments to address the situation.