Inflation rose to only 2.5% in March over the same month of the previous year on the back of dropping prices of commodities, reported the Pakistan Bureau of Statistics on Wednesday.

Measured by the Consumer Price Index (CPI), it clocked in at its lowest level in the last eleven-and-a-half years. Last time, in September 2003, inflation was recorded at 2.18%, said PBS official Shaukat Zaman. The CPI indicator captures prices of 481 commodities every month in retail markets of urban areas.

It was the fifth consecutive month when the index remained at over an 11-year low level due to reduction in commodity prices in the international market and improvement in supplies of perishable food items. The reduction was in line with the expectations of market analysts.

The SBP recently cut the key policy rate, reducing it to a 13-year low of 8% – the move was widely welcomed but was below expectations. However, despite a decline in interest rates, there was not sufficient capital available for the private sector with the government remaining the single largest borrower in the first nine months of the fiscal year.

The underlying inflationary pressures have largely eased out, as fuel and food-adjusted inflation, known as core inflation, slipped below 6% after several years. Core inflation was recorded at 5.9% on year-on-year basis in March, a reduction of 0.3% over previous month. It came down for the seventh consecutive month.

With core inflation coming down below 6%, the real-interest rate has become a positive 2.1%. Trimmed inflation –calculated after excluding the top 20% of products witnessing an increase in prices and 20% items whose prices decreased – also clocked in at 3.8%. It was an indication that inflationary pressure was easing out.

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On a monthly basis, the CPI-measured prices slightly increased to 0.2% in March over February.

According to the PBS, in March, food and non-alcoholic beverages group inflation decelerated half percentage point over the same month last year. Non-perishable food items prices declined by 0.2% while there was a reduction of 2.3% in prices of perishable food items last month over a year ago.

On a year-on-year basis, the maximum reduction was in the prices for potatoes that declined 43.3%, followed by eggs (20.7%), chicken (16.3%) and onions (14.7%). However, price of pulses increased in the range of 11% to 16% after the government imposed taxes at the import stage. Transport fares also decreased 10.7% in March over a year ago.

The average inflation during the first nine months of the current fiscal year (July-March) rose to 5.1% as compared to the same period of the previous fiscal, according to the PBS. For the new fiscal year, the government has set the inflation target at 8%, which is expected to be achieved on the back of reduction in commodity prices in the international market. The reduction in the price of petroleum products remained the main driving force behind the steep decline in the overall inflation index.

The Asian Development Bank has projected that overall headline inflation will remain around 5.5% in the current fiscal year, ending on June 30.