Inflation likely to ease to 4.3% YoY, Analysts predict

December 31, 2024 (MLN): Pakistan’s inflation for the outgoing month of December is expected to ease significantly with an average estimate of 4.3% YoY compared to 4.9% YoY in the previous month and 29.7% YoY in December 2023, as per the projections put forth by various brokerage houses/analysts.

This would bring 6MFY25 average inflation to around 7.3%, compared to 28.8% during the same period last year.

On a monthly basis, the inflation is expected to move up with an average estimate of 0.3% compared to 0.5% last month. 

Analysts attributed the slowdown in inflation to the favourable base effect from last year’s high inflation, along with a flat food index and a drop in the transport index.

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.

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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