Pakistan’s Inflation Falls to 4.1%, Lowest in Over Six Years

Pakistan’s annual consumer inflation rate slowed to 4.1% in December, marking its lowest level in more than six and a half years, the Pakistan Bureau of Statistics announced on Wednesday.

This decline reflects progress in the South Asian country’s economic recovery, supported by a $7 billion International Monetary Fund (IMF) program initiated in September. On a month-to-month basis, consumer prices rose just 0.1% in December.

Gradual Decline in Inflation

The finance ministry had anticipated inflation to hover between 4% and 5% in December, following a decline to 4.9% in November. The drop was attributed to a high comparative base from the previous year, stabilizing currency, lower global commodity prices, and improved supply chains.

Earlier in May 2023, annual inflation had reached a multi-decade high of around 40%, driven by surging food and energy prices amid economic instability.

“Inflation has come down on the back of stable currency, lower global commodity prices, and improved supply chain,” noted Samiullah Tariq, head of research and development at Pak Kuwait Investment Company.

Central Bank Policy Eases

The State Bank of Pakistan (SBP) has played a pivotal role in managing inflation. It reduced its key policy rate by 200 basis points to 13% in December, marking the fifth consecutive rate cut since June. This brought the cumulative rate reductions for 2024 to 900 basis points, making the SBP one of the most aggressive central banks among emerging markets in easing monetary policy.

The central bank had previously targeted a medium-term inflation rate of 5-7%. The SBP governor recently expressed confidence that this target could be achieved within the next 12 months.

Fiscal Year Trends

For the first half of the current fiscal year, which ends in June 2025, average inflation stood at 7.22%, a significant drop compared to 28.79% during the same period last year.

The slowdown in inflation comes as a relief to households and businesses struggling with the economic fallout of recent years. However, challenges remain, including ensuring sustainable growth, managing fiscal deficits, and stabilizing external accounts.

Economists believe that continued adherence to IMF-backed reforms and prudent monetary policies will be crucial in maintaining economic stability and achieving long-term growth.

As Pakistan enters 2025, policymakers remain focused on navigating a path toward sustained recovery, with inflation control serving as a key pillar of their strategy.