Inflation likely to drop to 7.3pc in September amid high base effect: report

KARACHI: Pakistan’s annual consumer price inflation is expected to decline further in September, mainly due to a high base effect, according to the latest brokerage report.

“After falling into the single-digit territory, headline inflation is expected to continue its downward trend, projected to reach 7.3 per cent, compared to 9.6 per cent in the preceding month and 31.4 per cent in the same period last year, said Insight Securities in a report on Friday.

“This decline is primarily driven by a high base effect, further supported by a month-on-month decrease of 0.1 per cent, mainly due to decline in housing and transport indices,” it said.

According to the report, the housing index is predicted to decrease by about 1.1 per cent on a monthly basis as a result of the negative fuel cost adjustment. In a similar vein, decreasing fuel costs are expected to cause the transport index to drop by 1.6 per cent MoM.

Inflation figures for September are anticipated to be announced early next week, most likely on Tuesday.

The report’s inflation estimate is released at a time when the government, in its Friday economic outlook report forecast that inflation would drop to 8-9 per cent in September and October.

The central bank has already reduced its benchmark interest rate by 450 basis points (bps) over the last three monetary policy meetings.

“As inflation readings continue to ease and real rates hover at the 10 per cent mark, we anticipate a further 100bps cut in the policy rate at the upcoming Monetary Policy Committee (MPC) meeting scheduled for November 2024,” the Insight Securities report said.

“We believe that headline inflation will further decline and is expected to reach its lowest point in January 2025 within a range of 5.5-6 per cent, before rising again due to the low base effect post 1QCY25,” it said.

“We estimate headline inflation to average around 8-9 per cent in FY25 and expect the policy rate to drop to 14 per cent by the end of FY25.”

This week the International Monetary Fund approved $7 billion in funding, which gave Pakistan’s faltering economy a much-needed boost.

On Friday, the $1 billion first tranche was received, according to the State Bank of Pakistan.

The approval of the IMF’s loan programme and contained external accounts, the report states, give policymakers some leeway to steer the economy back towards a sustainable growth path after establishing some degree of stability in the previous 12 months.

However, prudent fiscal management and the gradual implementation of reforms are essential for long-term economic growth. Going ahead, subdued crude oil prices and stable currency are the main factors that will dictate the inflation trajectory, according to the report.