The Pakistan Bureau of Statistics (PBS) has come up with a very pleasant surprise. The year-to-year rate of inflation, as measured by the Consumer Price Index (CPI), has come down to only 11.8% in May 2024. This is close to a single-digit rate, and is the lowest since November 2021.

There is need to analyze the factors that have contributed to this sharp decline. This will enable an assessment as to whether this low rate of inflation will be sustained in coming months.

The fact is that the year-to-year rate of inflation has been falling steadily since December 2023, when it was 29.7%. The rate of decline has averaged over 3.5 percentage points monthly. However, the decline was exceptionally large at 5.5 percentage points in May 2024, as compared to April 2024.

The truly remarkable development is the extraordinary containment in the rate of inflation in food prices. On a year-to-year basis, food prices have increased by only 1.4% in the country as a whole. The rate of inflation in food prices was as high as 29% in December 2023.

The fall in the rate of inflation is much less pronounced in non-food prices, which have a weight of over 60% in the overall CPI. On a year-to-year basis, the rate of inflation in May 2024 was 19.8%. The fall is less pronounced from 28.8% in December 2023.

The first factor which has contributed to the very low rate of inflation in May 2024 is what can be described as a ‘high base’........

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