Karachi, December 31, 2024 – Headline inflation in Pakistan is expected to decline to 4.7% in December 2024, marking its lowest level in 80 months, analysts at Insight Securities (Pvt) Limited revealed on Tuesday. This significant decrease in inflation reflects the impact of a favorable base effect and a reduction in transport costs due to lower fuel prices.
On a month-on-month (MoM) basis, however, the Consumer Price Index (CPI) is projected to rise slightly by 0.7%. This modest increase is attributed to higher prices in the clothing and food categories. The clothing index is expected to surge due to rising prices of woolen garments and footwear, while the food basket is anticipated to climb by 0.5% MoM, driven by higher costs of vegetables and cooking oils.
Within the Sensitive Price Indicator (SPI) basket, notable price hikes were observed in items such as footwear (12.5%), tomatoes (9.8%), potatoes (9.1%), vegetable ghee (7.1%), and fresh vegetables (6.9%). Conversely, some items experienced price reductions, including chicken (-12.7%), pulse gram (-6.1%), onions (-3.6%), pulse mash (-3.2%), and pulse masoor (-2.5%).
For the full year of 2024, inflation is projected to average 13.2%, a significant reduction from the 30.9% recorded in 2023. This decline has prompted the central bank to adopt an accommodative monetary policy stance, cutting the policy rate by 900 basis points from 22% in June 2024 to 13% by December 2024. Analysts predict inflation will average 7% in FY25, though it may gradually rise after the first quarter of 2025.
Despite the decline in headline inflation, core inflation remains a concern. Urban and rural core inflation for December 2024 is forecasted at approximately 8.9% and 11.2%, respectively. This persistence of core inflation, combined with a lag in the transmission of the central bank’s policy rate cuts, has tempered expectations of further aggressive monetary easing.
Additionally, the recent uptick in credit offtake poses potential demand-side pressures on the economy. Analysts caution that while inflation has moderated significantly, vigilance is required to ensure sustained economic stability. With inflationary trends showing promise, Pakistan’s economic trajectory in 2025 is likely to depend on prudent fiscal and monetary measures.