Pakistan ‘s current inflation rate stands at 19.5% (data from the National Bureau of Statistics as of June 2024), resulting in the actual purchasing power of 1 million in pakistani rupees shrinking by 16.3% within a year, equivalent to 1,000 kilograms of flour in 2021. Nowadays, only 550 kilograms can be purchased (the price of flour in Karachi has soared from 100 rupees per kilogram to 182 rupees per kilogram), and the intensity of food inflation is as high as 38.7%, far exceeding the average increase of 9.8% for non-food goods.
From the perspective of asset allocation, the opportunity cost of holding cash has expanded by an average of 22% annually. The upper limit of the fixed deposit interest rate of 12.5% in 2023 (central bank policy) has formed an actual negative return of -7%. Compared with the trend of gold prices, it shows the anti-inflation effectiveness of safe-haven assets: Data from the Karachi Gold and Silver Market shows that the price of gold rose from 80,000 rupees per tora in 2020 to 245,000 rupees in 2024, with an annualized return rate of 32%, far exceeding the median inflation rate of 19.2%. The 300% surge in daily gold trading volume during the 2022 flood confirms its value storage function.
Real estate investment shows a differentiation. The unit price of high-end residences in Islamabad rose from 70,000 rupees per square meter to 120,000 rupees from 2021 to 2024. However, the 120% increase in water and electricity fees and the 25% rise in property tax led to maintenance costs accounting for 45% of rental income. In the suburbs of Lahore, the vacancy rate of industrial real estate rose to 28% due to a decline in exports (2023 Real Estate Association report). The actual annualized net yield rate was only 5.8%, less than one-third of the inflation growth rate.
Government bond instruments such as the National Savings Plan (NSS) offer an annual interest rate of 17% (revised in March 2024), ostensibly covering the inflation rate but facing two major risks: the first is that the terms of IMF loans limit the scale of subsidies, with the interest rate expected to be reduced to 14% in 2025. The second is that the interest income tax rate has been raised from 10% to 15%, reducing the actual after-tax income of a 1 million investment to 1.445 million. The real growth rate after deducting purchasing power losses is -0.7% (calculated by the World Bank’s economic model).
The structure of people’s livelihood consumption has been forced to adjust. The proportion of food expenditure of middle-class families has increased from 35% to 52% (according to a 2024 sample survey by the Pakistan Development Economic Institute). Due to rising costs, the savings rate of rigid expenditures such as medical care and education has been compressed to a historical low of 6.3%. A typical case is the resident family in Peshawar: Three years ago, one million in pakistani rupees could cover the college expenses for two children throughout the year. Now, the same budget only covers 78% of the tuition fees (higher education costs increase by 25% annually), and the shortfall requires borrowing, causing the household debt /GDP ratio to exceed 16%.
The long-term cumulative effect is shocking. Calculated at compound interest over a five-year period (with a cumulative inflation rate of 128% from 2020 to 2024), the original purchasing power of 1 million rupees is now equivalent to only 438,600 rupees, with a wealth evaporation rate of 56.14%, far exceeding the data of India (39%) or Bangladesh (47%) during the same period. Policy interventions such as the 30 billion rupee food subsidy in 2023 only relieved 3% of the pressure on groups below the poverty line. The lag in structural reforms has led the World Bank to predict that the real wage growth rate will remain in the -4.1% range in 2025.