Inﬂation[¹] is projected to fall between 10.0 to 10.5 per cent in FY2022 and 11.0 to 11.5 per cent in the ﬁrst half of FY2023. Inﬂation (YoY) is expected to remain in the range of 11.5 to 12.0 per cent by end-June 2022 and 8.5 to 9.0 per cent by December 2022.
Pakistan Institute of Development Economics (PIDE)’s inﬂation forecasting models predict inﬂation to remain between 10.0 to 10.5 per cent in FY2022 and 11.0 to 11.5 per cent in the ﬁrst half of FY2023. Compared to forecasts made by the State Bank of Pakistan (7 to 9 per cent), the International Monetary Fund (8.5 per cent) and the Asian Development Bank (7.5 per cent), PIDE forecasts inﬂation to remain substantially higher. PIDE also expects inﬂation to persist in double digits till December 2022 with an upward momentum through the remaining part of FY2022 and the ﬁrst half of FY2023. PIDE strongly believes that there will be a signiﬁcant upward revision in the State Bank of Pakistan’s forecasts (expected range of 9.0 to 11.0 per cent from the previous forecast of 7.0 to 9.0 per cent).
Despite being signiﬁcantly higher than forecasts by other institutions, PIDE’s forecast is perfectly in line with the results of the Survey of Industry experts.[²] More than 80 per cent of the respondents expected inﬂation in FY2022 to remain between 9.5 to 11.0 per cent. The respondents also believed that inﬂation will remain in double digits in the next two ﬁscal years and will only be back to a single digit in FY2024. Survey participants also expected GDP growth to remain between 4.0 to 4.7 per cent in the next several years.
PIDE analysis also indicates that inﬂation persistence has risen and will further rise in the next ﬁve quarters. Out of 94 composite commodities, around 70 commodities are projected to continue with double-digit growth in their prices. Out of these 70, more than 25 commodities are projected to grow at more than 14 per cent. PIDE also anticipates inﬂation to remain broad-based with both food and non-food items contributing to high inﬂation. The measures of uncertainty and fan charts also indicate that inﬂation is expected to remain within the range predicted by PIDE’s models.
The increasing trend of inﬂation with high persistence and a broader base supports PIDE’s suggestion for an immediate adjustment in the policy rate by at least 75 basis points. PIDE’s inﬂation forecasting models anticipate a one per cent increase in electricity prices, translating into an 8 per cent increase in fuel prices and an upward policy adjustment of 75 basis points in policy rate within the next two months given the prior information that Pakistan requires at least a 14 per cent increase in electricity prices to overcome the crushing burden of ever-increasing circular debt. We introduced an additional shock of 13 per cent in the next ﬁve months and found that with the full adjustment of electricity shock, inﬂation could go up 0.43 per cent in FY2022 and 0.66 per cent in the ﬁrst half of FY2023. Similarly, the additional shock of 10 per cent in fuel prices could further push the inﬂation by 0.32 per cent in FY2022 and 0.46 per cent in the ﬁrst half of FY2023. The inﬂation forecast anticipates 8 per cent policy rate and expects inﬂation to come down by 0.26 per cent by December 2022 with every 100 basis points increase in the policy rate.
 Inflation means average CPI (Consumer price Index) Inflation.
 PIDE conducted the survey and recorded responses of 61 respondents.
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