Ministry warns of food-driven spike in inflation

ISLAMABAD: Conceding a higher inflationary trend for the current month and challenges to current seasonal crops ahead, the government on Friday hoped for encouraging and sustainable growth prospects on the basis of budgetary measures for the next fiscal year.

“The inflation outlook for June has slightly increased compared to the previous month but remains well below the levels of the same month last year. This rise is primarily due to higher prices of perishable items driven by Eidul Azha”, the Ministry of Finance said on Friday in its monthly economic update and outlook.

In its ‘Seasonal Agro-Climate Outlook for June-August 2024’, the Pakistan Meteorological Department has advised the farmers to take measures based on recent extreme heatwave events. The amount of soil moisture available is currently under stress in most parts of the country.

“Accordingly, seasonal crops like cotton, peanut, sugarcane, seasonal vegetables and orchards are under water stress and require additional irrigation in most parts of the country”, the MoF said.

The report claimed that FY24 was concluding with “an economic stabilisation path accompanied by improved macroeconomic indicators”. The subsiding inflationary pressures, stability in external accounts and exchange rate, fiscal consolidation and gradual recovery in industrial activities were restoring the confidence of economic agents thus facilitating economic growth, it added.

Outlook says economic stabilisation has improved key indicators in FY24

The MoF said the budget 2024-25 was geared towards a shift to an era of sustainable and inclusive growth, for which the government was focusing on high-potential sectors like IT, SMEs, mines and minerals, tourism, exports and agriculture. These sectors can pay rich dividends and support the country’s balance of payments position.

“Complementing this, fiscal discipline, effective implementation of home-grown growth programme along with bilateral and multilateral cooperation will necessitate the sustainable potential growth path in coming years”, the ministry hoped.

The government claimed credit for recent fuel price reductions, although it simply passed on the impact of international prices. On the other hand, the government never takes blame when these prices go up more frequently than price cuts.

It said it was “implementing various administrative, policy, and relief measures to control inflationary pressures. Notably, the government reduced petrol prices by Rs4.74 per litre and diesel by Rs3.86 per litre on June 1, with further reductions of Rs10.20 per litre for petrol and Rs2.33 per litre for diesel effective from June 15”. These actions, coupled with efforts to boost the availability of food items, reflect the government’s commitment to curbing inflation.

The report did not mention the measures to boost the availability of food items even though it had rather allowed the export of sugar while its prices were rising and lobbying was already in process for allowing wheat exports. “By managing supply and demand, the government aims to stabilise prices and mitigate market volatility, presenting a more optimistic inflation outlook”, it said.

At the same time, the ministry quoted the Food and Agriculture Organisation’s food price index, a key indicator tracking the prices of globally traded food commodities that registered an increase of 0.9pc in May over the revised April level.

“This is the third consecutive monthly increase after a seven-month decline. However, it remained down 3.4pc compared to its value from one year ago”, the ministry said, adding that despite higher prices of perishable items during June, the government measures to reduce transport charges are expected to keep June inflation within the range of 12.5-13.5pc“.

Quoting a moderate Large-Scale Manufacturing (LSM) growth at 0.45pc during Julu-April FY24, the report expected “this turnaround” to continue in upcoming months on the back of stimulated external demand, improved business confidence, and removal of import restrictions.

Moreover, the subsiding inflationary pressures and the shift in monetary policy will likely boost the business confidence, thus expecting LSM to be on an upward growth trajectory in the remaining months of FY24 and the next fiscal year.

Also, it said the economic activities had gained traction during the second half of FY24 and attributed this to a declining trend in inflationary pressures, stability in external accounts, and gradual recovery in industrial activities due to the government’s various policy and administrative measures, together with improvement in foreign demand.