In recent months, Pakistani policymakers have expressed a newfound sense of confidence in the nation’s economic trajectory. Optimistic updates on inflation, policy rates, currency stability, foreign exchange reserves, and a positive nod from the International Monetary Fund (IMF) suggest that stability is on the horizon. However, the sentiment among the public tells a different story. The Consumer Confidence Index (CCI), a collaboration between the State Bank of Pakistan and the Institute of Business Administration, reveals a stark contrast to the optimism echoed by officials, marking its lowest value since September 2023.
A Roller Coaster of Confidence
It is a striking paradox that the CCI, which peaked at a two-year high in June 2024—just four months after the General Elections—has now plummeted to a 12-month low. The CCI surged by nine percentage points during the election period, reflecting a temporary uplift in consumer sentiment. Yet, the swift decline to a CCI of 31, representing a drop of nearly 10 percentage points, has left many questioning the stability of consumer confidence in the face of improving macroeconomic indicators.
The most significant dip in confidence occurred in July 2024, driven largely by federal budget measures that imposed additional taxes on the salaried class. Coupled with energy price adjustments mandated by the IMF, these changes were a catalyst for disillusionment among consumers. Although relief soon followed—with the federal and Punjab governments announcing electricity subsidies amounting to Rs100 billion for the first quarter of FY25, benefiting over 80 percent of consumers—the damage to consumer confidence had already been done.
Inflation and Purchasing Power
While inflation figures began to show promise, with August 2024 recording a single-digit Consumer Price Index (CPI) for the first time in years, consumer confidence remained unaffected. The reality is that inflation, although slowing, has severely eroded purchasing power. Real wages have failed to keep pace with inflation, causing a decline in disposable income and dampening consumer sentiment. This phenomenon may be more significant than the actual rate of price change.
Delving deeper into the September 2024 survey results reveals a troubling picture: a growing number of respondents hold negative views about their income prospects for the upcoming year, reaching the lowest point in over a year. When asked if it was a good time to make significant purchases such as durable goods, vehicles, or property, only 27 percent expressed positive views—the lowest since September 2023.
The Inflation Expectations Index
The Inflation Expectations Index (IEI) further underscores the grim outlook. A staggering 73 percent of respondents anticipate high inflation over the next six months. Despite indications of a slowing rate of price increases, many consumers seem unable to shake off their inflationary anxieties. This disconnection between ground-level data and consumer sentiment may stem from an acute awareness of real income and purchasing power rather than a mere reflection of current inflation rates.
Furthermore, the CCI highlights the dire sentiment towards overall economic conditions, with 74 percent of respondents expressing negative or very negative views. This is only a marginal improvement from the previous month, indicating that skepticism about the economy persists. Just months earlier, in June 2024, only 57 percent of respondents held negative views about current and anticipated economic conditions.
The Impact of Energy Prices
Looking ahead, the impending rise in electricity prices after the expiration of subsidies could exacerbate inflation expectations. Energy inflation has historically been a driving force behind overall inflation, making it likely that the public’s perception of inflation will worsen as utility costs rise. Policymakers and economists understand the critical role of consumer confidence in shaping monetary policy. Given the latest trends in consumer sentiment, the central bank is unlikely to hastily lower interest rates, despite calls from stock market enthusiasts for more aggressive monetary easing.
Bridging the Gap Between Policy and Public Sentiment
The current crisis of consumer confidence presents a unique challenge for policymakers. Despite the positive indicators emerging from economic recovery, the stark contrast between these metrics and public sentiment indicates a disconnect that requires urgent attention. Policymakers must find ways to bridge this gap by directly addressing the concerns of consumers and demonstrating the tangible benefits of economic improvements in their daily lives.
Conclusion
In conclusion, while Pakistan’s economic indicators show signs of recovery, the significant decline in consumer confidence highlights an essential reality: economic data alone cannot capture the lived experiences of everyday citizens. As inflation continues to impact purchasing power, it is critical for the government to prioritize policies that not only stabilize the economy but also rebuild trust and confidence among consumers. Addressing these concerns transparently and effectively will be crucial in ensuring that the positive trajectory of macroeconomic indicators translates into genuine improvements in the lives of the Pakistani people.
As the situation continues to evolve, the path toward sustainable economic recovery hinges on the government’s ability to reassure and uplift the consumer sentiment that plays a pivotal role in driving economic growth.
Comments