Islamabad, Pakistan’s consumer price index (CPI) for March 2024 showed inflation at a 22-month low, marking the first instance of positive real interest rates since December 2020.

According to JS Global, the CPI increased by 20.7% year-on-year while month-on-month inflation rose by 1.71 percentage points. The reduction in inflation has shifted real interest rates into positive territory. However, there is growing concern about the impact of potential upcoming economic reforms, particularly the anticipated levies and taxes on petroleum oil lubricants (POL) products, which may prompt another wave of inflationary pressures.

Analysts have conducted sensitivity analyses on the possible effects of increased taxes and levies. A hypothetical scenario where the Petroleum Development Levy (PDL) rises to Rs100 per liter (up from Rs60) and GST reaches 18% (currently at 0%) could lead to a significant 36% surge in POL prices. Such changes, if implemented all at once in April 2024, could push month-on-month CPI up by 5 percentage points for that month. This scenario would also raise the projected CPI from April 2024 to March 2025 to 19.1%, as opposed to the base case estimate of 14.6% still beneath the current Policy Rate of 22%.