The consumer price index (CPI) for July 2024 recorded an 11.1% year-on-year (YoY) increase, a notable decrease from the 12.6% YoY rise in June and a significant drop from the 28.3% YoY surge in July 2023, according to data released by the Pakistan Bureau of Statistics (PBS) on Thursday.

Despite the annual decline, the CPI surged 2.1% every month in July 2024, up from a 0.5% increase in June and compared to a 3.5% rise in July 2023. This monthly jump surpassed expectations from MG Research and the Finance Ministry.

The slowdown in inflation was primarily attributed to a reduction in electricity charges, following Prime Minister Shehbaz Sharif’s announcement of a Rs50 billion relief package. This package benefits domestic electricity consumers using up to 200 units per month, effective for three months until October.

Housing and energy costs experienced a minimal increase of 0.07% from the previous month but surged by 25.3% compared to the same period last year. Food costs saw a slight rise of 1.6% from last year, while transport prices jumped 12.2%.

Earlier this week, the State Bank of Pakistan (SBP) lowered its key policy rate by another 100 basis points to 19.5%. This reduction marks the second consecutive decrease, accumulating to a total reduction of 250 basis points since June 2024.

The average core inflation, which excludes food and energy prices, rose by 13.8% YoY in July 2024. This marks a slight decrease from the 14.1% YoY increase in June and a significant drop from the 20.9% YoY rise in July 2023. Every month, the core CPI increased by 0.9% in July, up from 0.7% in June and compared to 1.2% in July 2023.

| Metric | Jul-24 | Jun-24 | Jul-23 |
|----------------|--------|--------|--------|
| CPI MoM | 2.1% | 0.5% | 3.5% |
| CPI YoY | 11.1% | 12.6% | 28.3% |
| Core CPI MoM | 0.9% | 0.7% | 1.2% |
| Core CPI YoY | 13.8% | 14.1% | 20.9% |

With the CPI-based inflation rate at 11.1% and the policy rate at 19.5%, the real interest rate now stands at 8.4%.

Key factors influencing inflation

The decline in inflation is largely credited to the government's recent initiatives to curb electricity costs. Prime Minister Shehbaz Sharif’s relief package has provided some respite to consumers, which in turn has had a cooling effect on the overall inflation rate. However, the persistent rise in transport and food costs indicates underlying pressures that may continue to influence the inflation trajectory in the coming months.