CPI for April likely to clock in at 0.88%

May 01, 2025 (MLN): The Consumer Price Index (CPI) for April 2025 is estimated at 0.88% YoY, compared to 0.69% in previous month and 17.3% in the same period last year.

On a MoM basis, inflation is expected to decrease by -0.2% compared to the previous month’s MoM increase of 0.9%.

This will bring the average inflation for the ten months of FY25 to 4.9%, significantly lower than the 26.2% recorded in the same period of FY24. The notable decrease is largely attributed to a high base effect and reduced food prices.

The MoM drop is primarily driven by lower prices of Wheat, Eggs, Fresh fruits, Onions, and Tomatoes, leading to a 0.5% MoM decline in overall food inflation.

The housing index is expected to increase by 0.7% on a monthly basis and 0.3% on a yearly basis, primarily driven by revised house rent figures and a lower Fuel Cost Adjustment (FCA) of Rs 0.46 per KWh for April 2025, down from Rs 2.12 per KWh in March 2025.

However, the government's implementation of a Rs 1.71 per KWh Tariff Differential Subsidy (TDS) for the April–June 2025 quarter will likely exert upward pressure on the electricity index.

Meanwhile, the transport index is projected to fall by 0.3% month-on-month and 4.2% year-on-year, reflecting the recent cuts in petrol and diesel prices.

According to the Economic Update and Outlook by the Finance Division, Inflation in Pakistan is projected to remain subdued between 1.5% to 2% in April, according to the latest Monthly Update & Outlook released by the Ministry of Finance. However, the report anticipates a modest rise in inflation to 3.0%–4.0% by May 2025.

Despite the expected increase, inflation levels remain well below recent historical highs, signalling continued macroeconomic stability.

Real Interest Rate:

With April 2025 inflation expectations at just 0.88%, real interest rates stand at a substantial 11.1%, creating ample room for monetary easing.

The Monetary Policy Committee (MPC) is anticipated to cut the policy rate by 50 basis points in the upcoming May 2025 meeting, supported by favorable macroeconomic trends, including a record current account surplus of $1.2 billion in March and prospects of a strong external position for FY25.

However, the MPC may proceed with caution due to the forthcoming federal budget, the pending approval of the IMF’s second tranche, and the need to assess the overall impact of the 1,200bps rate cuts implemented since June 2024.

Last time, the MPC kept the policy rate unchanged at 12%, effective March 11, 2025, in contrast with market expectations.

The Committee noted that inflation in February 2025 turned out to be lower than expected, mainly due to a drop in food and energy prices. Notwithstanding this decline, the Committee assessed the risks posed by the inherent volatility in these prices to the current declining trend in inflation.

Given these developments, the Committee assessed inflation to come down further before gradually inching up and stabilizing within the 5% – 7% target range.