The fall in the value of the Pakistani rupee against the US dollar is expected to cause a surge in inflation, with petrol and diesel prices projected to increase by over Rs13 per litre due to the exchange rate, potentially reaching double digits if the dollar continues to appreciate. Additionally, the rise in dollar value will also lead to further increases in electricity tariffs, making the lives of citizens more difficult.
Fed Chair Jerome Powell reiterated that the Fed's inflation target will remain at 2% and that they are prepared to raise rates further if necessary, despite concerns of an economy that has re-accelerated above expectations.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
Short-term inflation in Pakistan increased by 25.34% on a year-on-year basis due to a surge in prices of kitchen items, although it decelerated from the previous week's rate of increase.
Bank of Japan Governor Kazuo Ueda stated that underlying inflation in Japan remains below the bank's 2% target, leading to the decision to maintain the current approach to monetary policy, despite core consumer inflation staying above the target for the 16th consecutive month.
Japan's inflation is "clearly in sight" of the central bank's target, according to board member Naoki Tamura, suggesting the possibility of ending negative interest rates early next year.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
The consistent devaluation of the Pakistani rupee is causing inflation and forcing the central bank to raise interest rates, leading to concerns about the economy and market confidence.
The relentless surge in pressure on the exchange rate and price level in Pakistan over the past two and a half years can be attributed to serious malfunctions on the balance of payments and fiscal accounts, which have thrown the monetary aggregates far from their projected path to stability. This has led to inflation and exchange rate pressure, and traditional IMF-mandated adjustments alone may not be enough to resolve the situation.
The current economic crisis in Pakistan is driven by high inflation, mismanaged policies, and failure to ensure price stability, leading to a weakened currency and a struggling middle class, but implementing radical reforms such as demonetization and swapping out foreign currency debt can potentially alleviate the situation and revive the economy.
The International Monetary Fund (IMF) has rejected Pakistan's proposal for tariff adjustment or additional subsidy to provide relief in electricity bills, despite the government's claim of improved bill collection; Pakistan has requested the IMF to allow the staggering of upcoming quarterly tariff adjustments and Fuel Price Adjustments over the next four to six months.
The rupee rebounded in the open market as a crackdown on the informal currency market helped narrow the gap between interbank and open-market rates, bringing it closer to the IMF's target of 1.25%. The State Bank of Pakistan has also introduced structural reforms for exchange firms and increased the minimum capital requirement, while ordering banks to set up separate entities for forex transactions.
Bank of Canada Governor Tiff Macklem suggests that interest rates may not be high enough to bring inflation back down to target, indicating a hawkish approach after keeping borrowing costs at a 22-year high; Macklem highlights the need for more restrictive monetary policy to restore price stability and reduce inflation.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
India's retail inflation eased in August due to moderating food prices, but remained above the central bank's target range for a second consecutive month, prompting policymakers to remain vigilant.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
Cryptocurrency prices remained stable as inflation in the U.S. surpassed economists' expectations, with Bitcoin trading at around $26,100 and Ethereum experiencing a slight dip of 0.5%. The Federal Reserve will consider this report, among other factors, for its upcoming interest rate announcement on September 20. While inflation has decreased since June, it still exceeds the Fed's target of 2% annually. Core inflation, excluding volatile food and energy costs, decreased to 4.3% in August compared to July's 4.7%.
The Pakistani rupee has depreciated significantly in the first three weeks of the interim government's tenure, reaching a record low and making it the worst-performing Asian currency this quarter, due to factors such as a change in government and high inflation. The State Bank of Pakistan is implementing measures to address the economic challenges, including reforming the exchange rate and modernizing the banking system.
The State Bank of Pakistan has announced that it will maintain its key policy rate at 22%, citing a continuing declining trend in inflation, improved agricultural outlook, and recent administrative and regulatory measures to address supply constraints and illegal activity. The bank hopes that inflation will subsequently decline in October.
Israel's annual inflation increased to 4.1% in August, surpassing the central bank's target range of 1%-3%, as consumer prices rose by 0.5%, driven by increases in the cost of fresh vegetables, culture and entertainment, transportation, and housing.
The short-term inflation in Pakistan increased by 26.25% due to a rise in the retail price of vegetables, particularly tomatoes and onions, caused by the closure of the Torkham border with Afghanistan.
The unprecedented increase in fuel prices in Pakistan is expected to cause a significant rise in inflation, with the Consumer Price Index projected to reach as high as 30% to 32% in September 2023.
Euro zone consumer inflation in August remained more than twice the European Central Bank's target, with a year-on-year rate of 5.2%, although slightly lower than initially estimated, according to Eurostat.
Japan's core inflation remained steady in August, staying above the central bank's 2% target for the 17th consecutive month, signaling broadening price pressure and potentially increasing the case for an exit from ultra-easy monetary policy.
