Pakistan Inflation Expected to Ease to 15% in FY2025: ADB Report

Pakistan Inflation Expected to Ease to 15% in FY2025: ADB Report

Karachi, April 11, 2024 – Pakistan is anticipated to witness a significant contraction in inflation to 15 percent during the next fiscal year 2024-25, according to a report released by the Asian Development Bank (ADB) on Thursday.

The report highlights a positive outlook for inflation, forecasting a decrease in headline inflation to 15 percent in FY2025 as progress on macroeconomic stabilization efforts restores confidence in the economy.

In response to persistent inflationary pressures and external imbalances, the central bank has maintained a tightened monetary policy, holding the policy interest rate at 22 percent. This commitment aims to lower inflation to the medium-term target range of 5%–7%, as outlined in the report.

However, the report acknowledges that inflation is expected to remain elevated at around 25% in FY2024, primarily driven by higher energy prices. Despite this, a gradual easing of inflation is anticipated in FY2025.

While improvements in food supplies and the moderation of inflation expectations may alleviate inflationary pressures, the report warns that further increases in energy prices, as envisaged under the IMF SBA, could keep inflation at elevated levels.

The surge in headline consumer inflation to 28% in the first 8 months of FY2024 can be attributed mainly to hikes in administered energy prices. Although there have been improvements in food supplies, food inflation remains high, largely driven by rising energy prices and agricultural input costs. Core inflation also remains elevated, reflecting the domestic economic recovery and the pass-through of upward adjustments in energy prices.

The report underscores the need for continued efforts to stabilize macroeconomic conditions and address inflationary pressures effectively. It suggests a balanced approach that focuses on enhancing food supplies, managing energy prices, and maintaining a tight monetary policy stance to achieve sustainable economic growth while curbing inflation.

As Pakistan navigates these economic challenges, policymakers and relevant stakeholders must remain vigilant and implement appropriate measures to ensure stable and inclusive economic development in the country.