Karachi August 22 2022: SBP expects inflation to fall sharply to 5-7 percent by the end of Fiscal Year 2023, according to statement issued by the Central Bank.
As expected, inflationary pressures intensified in July, with headline inflation rising by a further 3½ percentage points to 24.9 percent (y/y). The main contributors were food and energy inflation but core inflation also rose further, particularly in rural areas.
In coming months, curbing food inflation through supply-side measures that boost output and resolve supply-chain bottlenecks should be a high priority. Encouragingly, there is evidence that inflation expectations of businesses have eased significantly.
Looking ahead, headline inflation is projected to peak in the first quarter before declining gradually through the rest of the fiscal year. Thereafter, it is expected to decline sharply and fall to the 5-7 percent target range by the end of FY24, supported by the lagged effects of tight monetary and fiscal policies, the normalization of global commodity prices, and beneficial base effects.
This baseline outlook remains subject to uncertainty, with risks arising from the path of global commodity prices, the domestic fiscal policy stance, and the exchange rate.
The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth.
