Preparing for the Ramazan effect – Business

The surge in activity isn’t limited to roads, where unusually long traffic jams in Pakistan signal pre-Ramazan preparations. Shoppers crowd neighbourhood stores and departmental outlets while online platforms struggle to keep up with soaring orders. After all, Ramazan is the busiest month for markets, with household spending rising over 40 per cent above routine levels across all social classes.

Ramazan’s impact extends beyond individuals and their personal lives. In Pakistan, as in other Muslim-majority countries, markets — and arguably the entire economy — undergo adjustments during the holy month.

Changes in working hours, government policies tailored for Ramazan, and, most notably, market responses to shifts in consumer behaviour warrant careful assessment. Understanding these drivers can turn disruptions into opportunities, ensuring they support rather than strain economic activity.

As Ramazan culminates in the joyous celebration of Eid, a significant portion of the month’s non-food shopping, covering clothing, footwear, accessories and home appliances, is driven by Eid preparations. “It’s difficult to separate the Ramazan spending spike from the Eid economy, which is a phenomenon in itself and likely many times larger,” noted a market analyst.

Prominent leaders of the trading community expect relatively moderate expansion in the Ramazan market this year

The surge in market activity during Ramazan is fuelled by increased spending on food and Eid shopping, with charitable giving and remittances from relatives abroad helping bridge affordability gaps for vulnerable households.

Some prominent leaders of the trading community expect relatively moderate expansion in the Ramazan market in 2025. Ajmal Baloch, President of All Pakistan Anjuman-e-Tajiran, attributes lean consumer demand to prolonged economic strain on the majority. He anticipates 25 per cent expansion in the market this year compared to 2024.

“Market expansion is a function of citizens’ disposable income and its purchasing power. For the past three years, working families have faced stagnant incomes and higher taxes, while inflation has eroded the value of whatever little they have. The desire to provide more and better for their families exists, but affordability remains the real challenge. Even retailers are struggling, as their working capital is no longer sustainably sufficient and expanding to capitalise on the demand surge is beyond their means,” he observed.

When asked for input on the subject, the State Bank shared two research studies. One of them, titled ‘Effect of Ramazan on purchasing behaviour’, published in the International Review of Economics in February 2024, validates the long-standing projection of around 40pc market expansion during Ramazan, an estimate based on informal market surveys and consistently reported in these columns. However, certain self-proclaimed academic purists in Pakistan have repeatedly dismissed these figures as baseless and imaginary.

I quote from the conclusion of the published research paper: “Based on estimates, Muslim consumers spend around 40pc more money during the holy month of Ramadan. Therefore, this study recommends an increase in the supply of Ramadan-related goods over that in ordinary time to regulate goods pricing and maintain regular supply in the market. More commodities should be produced and imported to meet this increased demand. Otherwise, price increases due to demand-pull inflation or a lack of commodities on the market would make it difficult for low-income individuals and non-Muslims to meet their basic needs.”

The other shared document is the SBP Working Paper Series (February 2010): ‘Ramadan Effect on Price Movements: Evidence from Pakistan’. While the relevance of a 14-year-old study is debatable, it does provide a reference for discussing price trends during Ramazan. The study states: “On the basis of the results of the study, we can conclude that the overall CPI [consumer price index] inflation [month-on-month] may not increase in Ramadan. However, the opposite may be true in the case of explaining the Ramadan effect on individual items.”

Further findings of the study are compressed and reworded for clarity. “Since our results contradict the widely held perception of rising prices during Ramadan, it is important to consider possible explanations. First, to provide relief during Ramadan, the government takes special measures to control price hikes. Essential items are often sold at subsidised rates, and authorities ensure that retail markets do not impose excessive profit margins on key commodities. As a result, these interventions may limit the overall impact on price indices.

“Second, price increases may be limited to a few specific items. Given their small weight in the overall food and non-food price indices, their impact on aggregate inflation may be negligible.

“Third, consumption patterns shift before, during, and after Ramadan. Sales surge as families allocate more income for pre-Eid purchases. This rise in spending affects savings, leading individuals to attribute financial strain to inflation when, in reality, it stems from increased household expenditures rather than a general rise in price levels.”

Queries were sent to relevant cabinet members and officials, but no response was received by the deadline. Privately, officials in the planning and finance ministries shared anecdotes supporting the perception that consumer spending peaks during Ramazan. However, in the absence of comprehensive data on the scale and regional variations in spending patterns, they declined to provide on-the-record comments.

They did, however, stress the need for focused research to measure the scale, identify key drivers, and track trends for a better understanding of shifting consumption patterns during this period.

Published in Dawn, The Business and Finance Weekly, March 3rd, 2025