December CPI likely to come down to 4.4% YoY

December 30, 2024 (MLN): Headline inflation is likely to clock in at 4.39% YoY in December 2024, compared to 4.9% in the previous month and 29.7% in December 2023.

On a sequential basis, inflation is expected to stand at 0.37% MoM in December 2024, compared to 0.5% MoM in November 2024.

This would bring the average yearly inflation for 6MFY25 to 7.3%, compared to 28.8% in 6MFY24.

The slowdown in CPI is mainly due to a favourable base effect from last year’s high inflation, along with a flat food index and a drop in the transport index.

The food index is expected to rise slightly by 0.3% YoY in December 2024, while staying mostly unchanged on a monthly basis.

Lower prices for wheat, chicken, pulses, tomatoes, and rice are the main factors behind this stability, despite increases in the prices of eggs, cooking oil, potatoes, and fruits.

Meanwhile, the transport index is reported to decline by 2.6% YoY while on monthly basis the transport index is projected to increase by 0.9% MoM.  

Within the SPI basket, items that recorded significant increase in prices during the month include ladies footwear, tomatoes, Vegetable ghee, garlic, and potatoes whereas chicken, onions, pulses and rice witnessed a notable drop in prices.

On the policy rate front, the central bank has already cut the policy rate by a massive 900bps, bringing it down to 13% from 22% in June 2024.

The analyst fraternity is of the view that this trend of falling inflation gives the Monetary Policy Committee even more room to stick with the easing cycle in their next meeting.

SBP in its latest MPC statement noted that factors including favourable base effect from gas prices, along with the continued moderation in food inflation and benign global commodity prices will likely to continue in the near term and may bring headline inflation even lower in the coming months.

Accordingly, the Committee assessed FY25 inflation to average substantially below its earlier forecast range of 11.5%-13.5%.

At the same time, the inflation outlook is susceptible to multiple risks, including additional measures to meet the revenue shortfall, a resurgence in food inflation and an increase in global commodity prices.

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