Inflation to drop below 5pc for first time in six years: brokerage firm

KARACHI: Pakistan’s Consumer Price Index (CPI) for November 2024 is expected to rise between 4.5 per cent and 5.0 per cent year-on-year (YoY), marking the first time in 78 months that inflation has fallen below the 5 per cent threshold, according to a report by brokerage firm Topline Securities.

The report attributed the decline in inflation to easing commodity prices and policy measures, with the average inflation for the first five months of fiscal year 2025 (5MFY25) estimated at 7.91 per cent, significantly lower than 28.62 per cent in the same period last year.

Food inflation is projected to increase marginally by 0.2 per cent month-on-month (MoM) in November due to price hikes in eggs, pulse moong, tomatoes and potatoes, which rose by 5.0 per cent to 35 per cent. Meanwhile, housing, water, electricity and gas expenses are expected to increase by 0.11 per cent MoM due to a 7.0 per cent rise in liquefied petroleum gas (LPG) prices, offset by a decline in electricity tariffs following negative fuel cost adjustments.

Transport costs are forecast to rise 1.4 per cent MoM, driven by higher petrol and diesel prices.

The report highlighted a surge in real interest rates, now at 1000-1050 basis points (bps), far exceeding Pakistan’s historical average of 200-300bps. This development aligns with expectations of an interest rate of 11-12 per cent by December 2025, as inflation for FY25 is predicted to average 7-8 per cent.

The International Monetary Fund (IMF) recently revised its inflation forecast for FY25 to 9.5 per cent, down from an earlier projection of 12.7 per cent. The central bank also expects inflation for FY25 to fall below its previous range of 11.5-13.5 per cent.

Topline Securities noted that inflation estimates could be impacted by any significant fluctuations in commodity prices, particularly crude oil, which is currently around $75 per barrel.

With inflation moderating, economic observers suggest Pakistan may leverage this trend to stabilise its economy, though persistent vulnerabilities remain.