Karachi, November 19, 2024 – Pakistan’s headline inflation, based on the Consumer Price Index (CPI), is projected to drop to a 78-month low for November 2024, according to analysts at Topline Securities Limited.
The CPI for November is expected to be between 4.5% and 5.0% Year-on-Year (YoY), marking the first time in nearly seven years that inflation has fallen below 5%.
The analysts indicated that this decrease represents a significant drop from the inflation levels seen in recent years. The 4.5-5.0% YoY CPI for November would bring the average inflation for the first five months of the fiscal year 2025 (5MFY25) to 7.91%, a sharp decline from the 28.62% recorded in the same period of fiscal year 2024 (5MFY24).
In November 2024, food inflation is expected to rise by 0.2% Month-on-Month (MoM), driven primarily by price hikes in items such as eggs, pulse moong, tomatoes, and potatoes, with price increases ranging from 5% to 35%. The housing, water, electricity, and gas segment is anticipated to experience a modest growth of approximately 0.11% MoM, mainly due to a 7% rise in liquefied petroleum gas (LPG) prices, though electricity prices are likely to decrease due to a negative fuel cost adjustment.
The transport sector is expected to see a 1.4% MoM increase, driven by higher petrol and diesel prices, which have put upward pressure on transport costs.
With these inflation expectations for November, real interest rates in Pakistan are expected to rise to between 1000-1050 basis points (bps), significantly higher than the historical average of 200-300bps. This surge in real rates is a result of the relatively low inflation rate in comparison to the country’s interest rates, which is set to create a favorable investment environment.
Looking ahead, analysts expect the interest rate to settle between 11-12% by December 2025, providing positive real rates of 200-300bps, based on an anticipated average inflation of 8.8% for fiscal year 2026. For fiscal year 2025, inflation is expected to range between 7-8%.
The International Monetary Fund (IMF) has recently revised its inflation forecast for FY25, lowering it to 9.5% from an earlier projection of 12.7%. The central bank has also adjusted its inflation forecast, indicating that average inflation for FY25 will likely fall below the previous range of 11.5% to 13.5%.
However, key risks to these inflation estimates include potential fluctuations in commodity prices, particularly oil, which could alter inflation projections if prices deviate significantly from current levels.
