CPI inflation in Dec expected to be 4.1%, lowest reading since April 2018

KARACHI: Pakistan’s annual consumer price inflation rate is expected to drop to 4.1 per cent in December, the lowest level in more than six years, a brokerage report said on Tuesday.

“We expect inflation in December to decline to 4.1 per cent YoY [year-on-year], down from last month’s 4.9 per cent. This marks the lowest inflation reading since April 2018, when it stood at 3.96 per cent,” said Arif Habib Limited in a report.

“On a monthly basis, inflation is projected to increase slightly by 0.07 per cent,” it added.

The report noted that the monthly back-to-back low YoY inflation readings are primarily due to the high base effect, supported by a decline in food and housing indices. Additionally, if global commodity and energy prices remain stable and the Pakistani rupee continues to hold steady, it will provide further support to the inflation outlook, keeping price pressures contained.

Despite a modest YoY increase of 0.2 per cent in December, the report predicts a 0.1 per cent month-on-month (MoM) decline in food inflation. Lower costs for essential items including wheat flour, chicken, tomatoes, and onions are the main cause of the monthly reduction.

The housing index is projected to decrease by 0.6 per cent MoM, primarily driven by a 3.9 per cent MoM drop in electricity prices. Higher costs for fuel and diesel are predicted to cause the transport index to rise by 0.9 per cent MoM. On a year-over-year basis, it is still 2.7 per cent lower, which is indicative of the high base from the previous year.

According to the report, average inflation for 2024 is expected to be 13.13 per cent, which is a considerable decrease from the 30.9 per cent recorded in 2023.

Similarly, on a fiscal year basis, inflation for the first half of FY2025 is anticipated to average 7.3 per cent, compared to a staggering 28.8 per cent during the same period last year.

The State Bank of Pakistan cut its key interest rate by 200 basis points to 13 per cent for the fifth consecutive meeting last week, citing declining inflation.

The SBP’s Monetary Policy Committee (MPC) said in a monetary policy statement that inflation may remain volatile in the near term before stabilising in the target range.

The SBP expects inflation to average significantly below its earlier forecast range of 11.5 per cent to 13.5 per cent in FY25.