December inflation may surpass 30% due to gas price hike

In December, inflation is expected to surpass the 30 percent threshold, driven by the recent increase in gas prices and the persisting adverse base effect, which continues to impact the consumer price index (CPI).

The headline inflation for December is projected to settle at approximately 30.11 percent year-on-year (YoY) and 1.18 percent month-on-month (MoM), in contrast to the previous month’s figures of 29.2 percent YoY and 2.7 percent MoM.

This monthly inflation rate is significantly lower than the 12-month average of 2.17 percent MoM.

Consequently, the average yearly inflation for the first six months of FY24 is estimated to be 28.87 percent YoY, compared to 25.05 percent YoY in the same period of FY23.

The surge in inflation can be attributed to the adverse base effect and the notable increase in gas prices, which were not fully realized in the previous month.

Conversely, food inflation is expected to exhibit a marginal decrease of 0.29 percent MoM, driven primarily by the decline in prices of tomatoes, potatoes, chicken, and oil.

Additionally, the transport index is forecast to undergo a 4 percent MoM decrease, mainly due to the relief in petrol and high-speed diesel (HSD) prices.

Post-December, inflation is anticipated to decline at a relatively faster pace, supported by the favorable base effect, the delayed impact of monetary tightening, and other administrative measures.

The December spike is attributed to the lingering effects of the overdue gas price hike. Notably, unforeseen climate events, volatility in global commodity prices, especially oil, and external account pressures pose significant upside risks to the inflation outlook.

Global oil prices are on the rise amid challenges in Red Sea shipping, potentially threatening the inflation outlook.

Moreover, the successful completion of the International Monetary Fund (IMF) review, coupled with additional loan programs, remains crucial.

The outstanding amount of $1.8 billion under the stand-by arrangement (SBA) is yet to be released.

The accompanying chart illustrates the yearly inflation trajectory based on different MoM CPI scenarios. At 0.5 percent and 1 percent MoM CPI, yearly inflation is projected to fall below the 22 percent policy rate by February–March 2024.

By the end of FY24, with 0.5 percent and 1 percent MoM CPI, it is expected to decrease to 15.29 percent and 19.37 percent, respectively, a significant change from the previous month’s forecasts of 12.9 percent and 17.5 percent.

Considering the last 12-month average of 2.17 percent MoM, the real interest rate is anticipated to remain in negative territory by the end of FY24.


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