The Monetary Policy Committee (MPC), met under the chairmanship of the Governor State Bank of Pakistan (SBP) on 10 March 2025, and decided to keep the policy rate unchanged at 12 percent, justifying this decision on the grounds that core inflation at 7.8 percent remained “at an elevated level and is proving stickier than anticipated.” This observation was in spite of core inflation declining from 13.1 percent in April 2024 to 7.8 percent in February 2025 - a nearly 41 percent decline, with the policy rate decline from 22 percent to 12 percent (a decline of 45 percent).

Since July 2024 core inflation began to overtake Consumer Price Index (CPI) with a widening differential largely attributable to the fact that core inflation does not include price volatile items like energy and food but does include the impact of prices on incomes which have stagnated in the private sector for the past three to four years (though government employees’ income has increased significantly each year at the taxpayers’ expense accounting for about 7 percent of the country’s total workforce).

The stickiness displayed by core inflation could therefore be indicative of the decline in the purchasing power of the average Pakistani employed in the private sector.

The Monetary Policy Statement (MPS) further contended that “inflation outlook, however is susceptible to risks emanating from volatility to food prices, timing, and magnitude of energy price adjustments, additional revenue measures, protectionist policies in major economies and uncertain outlook of global commodity price.” Or, in other words, the susceptibility to risks is emanating from domestic factors that impact on CPI and not core inflation – items whose prices require approval of the International Monetary Fund (IMF) staff under the ongoing programme with the aim to achieve full cost recovery for the poorly run power sector and heavy reliance on petroleum levy (an input for transporting goods from farm to market) as a revenue source (budgeted at a whopping 1.26 trillion rupees this year).

Be that as........

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