KARACHI — Pakistan’s consumer price inflation slowed to 5.6% year-on-year in December, down from 6.1% in November, marking a significant cooling from the 30% peaks seen in 2023. Official data released Thursday by the Pakistan Bureau of Statistics reveals that prices actually fell on a monthly basis, primarily driven by a 1.7% drop in perishable food costs across both urban and rural sectors.
This deceleration follows a surprise move by the central bank last month to cut its key policy rate by 50 basis points to 10.5%, defying a Reuters poll where all analysts predicted rates would hold steady. While headline inflation remains within the bank’s 5%–7% target range, officials warned that core inflation remains “sticky,” with non-food prices staying elevated in December.
The International Monetary Fund (IMF) has expressed caution regarding this monetary easing, advising against premature cuts under the nation’s $7 billion loan program. Furthermore, the central bank cautioned that headline inflation may temporarily spike toward the end of the fiscal year in June due to base effects.
Economic Analysis: The Tussle Between Relief and Stability
The recent cooling of Pakistan’s Consumer Price Index (CPI) represents a fragile victory for an economy previously ravaged by hyperinflation. The shift from 30% peaks in 2023 to a more manageable 5.6% suggests that aggressive monetary tightening and improved agricultural supply chains—evidenced by the 1.7% drop in food prices—are taking effect.
However, the State Bank of Pakistan’s (SBP) decision to cut interest rates to 10.5% is a high-stakes gamble. While lower rates stimulate growth by making borrowing cheaper for businesses, they risk reigniting inflation if “sticky” core pressures—such as rising energy costs or service fees—are not fully suppressed. This tension is amplified by the IMF’s $7 billion oversight, where international lenders typically prioritize fiscal austerity and high rates to stabilize the currency. If Pakistan eases its monetary policy too quickly, it could face a “base effect” rebound, where inflation appears to surge simply because it is being compared to the lower price levels of the previous year.
