Inflation hits nine-year low, falling to 2.14 percent

Pakistan’s year-on-year (YOY) Consumer Price Index (CPI) inflation rate dropped down to just 2.41 percent in January with reports indicating that this is its lowest level in over nine years.

The fall in inflation- disinflation- is a result of falling price levels in the economy. Data from the Pakistan Bureau of Statistics (PBS) revealed that the CPI inflation rate stood at a staggering 28.3 percent just a year prior in January 2024.

However, PBS reported a rise in monthly CPI inflation from 0.1 percent in December 2024 to 0.2 percent in January 2025. While marginal, this represents a 100 percent rise in Month on Month inflation over the aforementioned period.

The fall in inflation rates can be linked to the sky high interest rates which the State Bank of Pakistan (SBP) set to tackle an issue that had been plaguing the economy - rising price levels. SBP had raised interest rates to approximately 22 percent in 2024.

However, the SBP has effectively slashed interest rates down to just 12 percent in the past six and a half months as disinflation took charge. The 1,000 basis point cut by the SBP has sent inflation into a downward spiral which spells great news for a vast majority of Pakistanis.

A drop in inflation effectively increases the purchasing power of consumers as their income can procure more goods and services with lower price tags. However, while the general level of prices in the economy has fallen, prices for certain commodities has increased.

On a YOY basis, food items such as potatoes, besan and pulses displayed significant increases in prices both in rural and urban areas. For instance, in the urban areas, the YOY price of potatoes, besan and pulses skyrocketed by an extortionate 45.12 percent, 44.72 percent, and 41.73 percent respectively. The corresponding YOY rise for rural areas was 49.32 percent for Potatoes, 45.85 percent for besan and 45.24 percent for pulses.

Despite rural areas having a lower income (on average) compared to urban areas, these regions witnessed a larger increase in prices depicting the financial plight of their residents. However, data revealed that the reverse was true for non-food items.

As per data, urban prices rose primarily because of Motor vehicle tax rising by a staggering 168.79 percent. Services in urban areas such as medical tests and dentist visits underwent a modest rise of 15.16 percent and 26.16 percent respectively.

In comparison, rural prices for non-food items rose conservatively as motor vehicle tax rose by 126.61 percent while the prices of dental services increased by 18.41 percent.