2024: Pakistan’s year of (dis)inflation

In May 2023, Pakistan’s consumer price index (CPI) inflation hit an all-time high of 38 per cent. Today, it stands at 4.9pc — a seemingly remarkable feat considering the country was at the precipice of a default last year before it clinched a last-minute International Monetary Fund (IMF) bailout. A Reuters report explains that when inflation numbers run high, it can cause big problems for the economy, not just because people and businesses hate paying more for everyday items, but because it can turn into a vicious cycle. Workers find that with higher prices, their paychecks do not go as far, so they demand higher wages, which businesses pay for by raising their prices, which then further strains paychecks. To counter that, the State Bank of Pakistan (SBP) stepped in and raised interest rates to an all-time high of 22pc in June 2023. Hiking interest rates make borrowing more expensive and restrain spending and, eventually, inflation since hiking interest rates seemingly curbs demand.