Inflation set to hit three-decade low in March: report

KARACHI: Pakistan’s Consumer Price Index (CPI) for March 2025 is expected to decline to a three-decade low, registering between 0.5 per cent and 1.0 per cent year-on-year (YoY), with a monthly increase of 0.9 per cent. This would bring the average inflation for the first nine months of FY25 to 5.38 per cent, a sharp drop from 27.06 per cent recorded in the same period last year, according to estimates from brokerage firm Topline Securities.

In the note, the firm’s analyst Shankar Talreja said that Ramazan is expected to push up food inflation by 2.5 per cent month-on-month (MoM), primarily driven by a 43 per cent surge in tomato prices, a 25 per cent increase in fresh fruits, and a 10 per cent hike in fresh vegetables. Poultry prices have also climbed, with chicken and eggs rising by 15 per cent MoM each. However, onion, tea, and pulses have declined by 7-21 per cent, providing some relief.

The housing, water, electricity and gas segment is set to drop 0.35 per cent MoM, with electricity prices declining by 2.3 per cent, attributed to a higher fuel cost adjustment of Rs2/kWh, compared to Rs1/kWh in February. The expiration of a +Rs0.1957/kWh quarterly tariff adjustment (QTA) last month and the pending approval of a -Rs2/unit QTA for March-May could further push electricity prices down by 6.27 per cent, reducing headline inflation by another 15 basis points (bps) if implemented in time.

Transport inflation is expected to fall 0.7 per cent MoM, following a 2.0 per cent average decline in diesel and petrol prices.

For FY25, the firm has revised its inflation projection downward to 5-6 per cent from 6-7 per cent, citing stabilising wheat prices and falling global oil prices. A detailed analysis will be released in its quarterly economic report in April.

With inflation dipping below 1.0 per cent in March, real interest rates are expected to be in the range of 1,100-1,150bps, significantly above Pakistan’s historical average of 200-300 bps. However, based on FY26 inflation estimates of 8-9 per cent, real rates could moderate to 300-400bps.

While the central bank has room to cut policy rates by 100bps, further easing may be delayed until the second half of 2025 due to IMF reviews, the FY26 budget, and rising imports. The State Bank of Pakistan currently expects FY25 inflation to range between 5-7 per cent. A major deviation in global commodity prices, particularly crude oil, currently projected at $75 per barrel for FY26, could alter inflation expectations and impact monetary policy decisions, the note said.