ISLAMABAD: The government on Thursday claimed that inflation in the first half year of the current fiscal year slowed to 7.2 per cent from 28.8pc in the same period last year, mainly due to action against illegal foreign exchange companies, smuggling and hoarding.

According to the finance ministry announcement on Thursday, the sharp deceleration in inflation is attributed to exchange rate stability, prudent fiscal management, and improved supply arrangements for essential commodities.

It further said that strict action against illegal foreign exchange companies, smuggling, and hoarding has helped stabilise the exchange rate, boost market confidence, and ensure a steady supply of goods.

According to the finance ministry, inflation is expected to stabilise near the long-term average of 7pc in the coming quarters, fostering conditions conducive to economic activity. This anticipated stability will likely facilitate a further reduction in policy rates, lowering borrowing costs for both businesses and consumers.

Inflation remained persistently elevated at 23.4pc in FY24 after reaching a multi-decade high of 29.2pc in FY23. This ease in inflationary pressures highlights the effectiveness of an optimal policy mix, including fiscal consolidation, targeted interventions by the State Bank of Pakistan (SBP), and exchange rate stability, alongside favourable external conditions.

These measures have played a crucial role in alleviating inflationary pressures and fostering a more stable macroeconomic environment. As indicated by the World Bank Food Price Index, international trends have contributed to lower import costs for essential food items, alleviating domestic inflationary pressures.

The Sensitive Price Index (SPI), which tracks the weekly price movement of 51 essential items, has continuously declined over the last four weeks of January 2025. In the week ending on January 23, 2025, the SPI decreased by 0.77pc. During this period, prices of 12 items decreased, 14 increased, and 25 remained stable, indicating overall stability or a downward trend in the prices of essential goods.

The Economic Coordination Committee (ECC) had observed an abnormal increase in the prices of pulses and chicken in early November and took corrective measures. As a result, the price of gram pulse declined by Rs52.5 per kg (from Rs411.3 to Rs358.8), and mash pulse decreased by Rs37.4 per kg (from Rs528.3 to Rs490.9).

Published in Dawn, January 31st, 2025