Last year was tough as the headline inflation remained above 20 percent for the second consecutive year. The FY24 average inflation stood at 23.4 percent, down from 29.2 percent in the previous year. The inflation in FY24 is the fourth highest in around eight decades of the country’s history.

In FY24, the food inflation increase stood at 21.9 percent, significantly lower than the previous year’s increase of 39.0 percent. Going forward, the decline in food inflation is likely to continue.

The non-food inflation at 24.6 percent last year was the highest in the recorded history of this category. The figure was 22 percent in FY23, and the second-round impact of higher food and fuel prices in FY23 is more visible in FY24. There are still sectors (such as health, education, and recreation) where the second-round impact continues; however, the new thrust of price hikes is not exerting pressure.

The story of the CPI core is similar, which inched up to 18.7 percent in FY24 from 18.0 percent in the previous year. The impact was more visible in rural communities where the core stood at 22.7 percent (up from 20.6 percent last year) while the urban reading is recorded at 16.1 percent (16.2 percent in FY23).

Rural inflation was higher as agricultural commodity prices were growing, and these are somehow linked to rural wages and overall demand. Now, with falling prices—especially of wheat—there might be a significant decline in rural core inflation in FY25.

Similarly, the WPI is coming down as well, recorded at 20.1 percent in FY24, down from 32.8 percent in the previous year.

All these trends are reflected in the decreasing monthly readings, resulting in a fast fall in year-on-year inflation. The toll stood at 12.6 percent in June, which is slightly higher than the previous reading of 11.8 percent. The price increase in June from May is 0.5 percent compared to a decline of 3.2 percent in May from April.

There was an upsurge in June mainly due to a rise in the prices of perishable food items, electricity charges, clothing, health, and recreation. In Pakistan, the headline inflation is mainly driven by food (especially non-perishable items), and those prices are already down from the peak, which should keep the headline inflation in check in FY25.

Thus, the CPI readings won’t be a challenge going forward. However, the disproportionate taxation measures on the urban middle class (direct and indirect) are going to further erode disposable income. Falling staple food prices are likely to keep farmers’ income in check. Low demand results in lower inflation, but the economic slowdown will continue, and the misery of the middle and lower middle class is not likely to go away anytime soon.

The FY25 budget has resulted in ending exemptions on dairy products, medical equipment, and many other items, which will further erode purchasing power and keep inflation in certain categories up. These measures, along with upcoming revisions in energy prices, are likely to keep inflation higher than general expectations—likely around or below 15 percent in FY25.