Karachi, October 30, 2023 – Analysts at Insight Research anticipate that Pakistan’s headline inflation is likely to ease to 26.57 percent in October 2023.
After a slight increase in September 2023, where inflation reached 31.44 percent compared to 27.38 percent in August 2023, headline inflation is expected to continue its downward trend in October 2023.
The year-on-year (YoY) increase in inflation is primarily attributed to higher food prices. This is projected to result in an average inflation rate of 28.4 percent during the first four months (July – October) of the current fiscal year 2023-24, compared to 25.5 percent during the same period last year (SPLY).
On a month-on-month (MoM) basis, inflation is expected to increase by 83 basis points, a smaller increase compared to the 200 basis points recorded in September 2023 and a 12-month average of 230 basis points. This increase is mainly driven by a 1.2 percent MoM increase in the housing index and a 3.5 percent MoM increase in the transport index.
It’s worth noting that the recent reduction in petrol prices may not be fully reflected in the October 2023 inflation figures due to the methodology of the Pakistan Bureau of Statistics (PBS). Considering the recent 14 percent MoM cut in petrol prices and an 8 percent MoM cut in diesel prices, the revised inflation estimate for October 2023 would be approximately 26.22 percent.
Within the Sensitive Price Indicator (SPI) basket, some items recorded significant price increases during the review period. These include onions (28.57%), fresh vegetables (11.32%), eggs (8.63%), motor fuel (5.12%), and liquefied petroleum gas (LPG) (4.17%). On the other hand, the prices of certain items decreased during the month, such as sugar (11.87%), fresh fruits (11.42%), pulse gram (7.67%), gur (6.48%), and pulse masoor (6.37%).
Looking ahead, inflation is expected to continue its declining trend, primarily due to a high base effect and administrative efforts to discourage hoarding of perishable items, along with a stable currency. Notably, the weekly SPI has recorded two consecutive negative readings due to declining petroleum prices and some reductions in food item prices.
The headline inflation estimate based on the Consumer Price Index (CPI) over the next 12 months now stands at 19.5 percent, indicating a rationale for an earlier than expected rate cut.
While the analysts anticipate that the Monetary Policy Committee (MPC) will maintain the status quo in today’s meeting, they don’t rule out the possibility of a token rate cut in December 2023. Currency devaluation and increases in energy tariffs remain key risks to inflation estimates.
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