Pakistan’s Consumer Price Index (CPI) for October 2024 is projected to be between 6.5 and 7.0 percent year-on-year, with a month-on-month increase of 0.9 percent. This brings the average inflation for the first four months of the fiscal year 2025 (4MFY25) to 8.6 percent, a significant decrease from the 28 percent recorded in the same period last year, according to a report by Topline Securities.
The report anticipates a rise in food inflation by 0.7 percent month-on-month in October, primarily due to increased prices of wheat and chicken.
The State Bank of Pakistan is scheduled to hold its monetary policy meeting on November 4, 2024. Topline Securities expects a fourth consecutive interest rate cut, potentially reducing rates by 200 basis points from the current 17.5 percent. This would bring the total reduction to 650 basis points over the past 4-5 months, with the policy rate projected to fall to 13-14 percent by June 2025.
With inflation expectations for October 2024 at approximately 6.5-7.0 percent, real interest rates are expected to surge to 1050-1100 basis points, significantly higher than Pakistan’s historical average of 200-300 basis points.
The housing, water, electricity, and gas segment is anticipated to grow by about 3 percent month-on-month, driven by an expected rent increase of 2-2.5 percent and a rise in electricity tariffs from Rs. 7.7/kWh to Rs. 11.69/kWh for protected consumers, following the expiration of a three-month subsidy on power consumption.
Conversely, the transport segment is expected to see a 2.3 percent month-on-month decline due to falling petrol and diesel prices.
The report has revised its average inflation forecast for FY25 down to 7-8 percent, citing faster-than-expected disinflation in the food segment in previous months, despite recent increases in wheat prices and negative fuel cost adjustments.
The International Monetary Fund (IMF) has also revised its average inflation forecast for FY25 down to 9.5 percent from an earlier estimate of 12.7 percent. The central bank, in its recent monetary policy communication, noted that FY25 average inflation is expected to fall below the previously forecasted range of 11.5-13.5 percent.
However, the report warns that any significant deviation in commodity prices, such as oil prices moving from the current level of $75 per barrel, could alter these inflation estimates.
