Pakistan Likely to Enter Single-Digit Inflation Territory for First Time in 3 Years in August

Pakistan is likely to enter the single-digit inflation territory for the first time in three years from in August 2024, according to a report by JS Global. The brokerage house said that CPI is set to tumble to a 34-month low at 9.3 percent in August 2024, primarily driven by a favorable base effect from the soaring inflation of the previous year. The sharp disinflation is despite a 10bp month-on-month (MoM) increase in the headline inflation. This would take 2MFY25 average to 10.2 percent, down from 2MFY24 average of 27.8 percent. The report said that food inflation, which was in hyperinflationary territory last year, is expected to clock in at 2.3 percent year-on-year (YoY), with a 1.4 percent MoM uptick. Food inflation was in a hyperinflation phase during FY23 and extended to September 2023 with average MoM uptick of 270bp and YoY trend of around 38 percent. The sequential price increase in food (35 percent weight) is expected to outpace the decline in energy prices. SPI data reflects a 16 percent MoM reduction in Power price Index (4.5 percent weight) at the start of the month, while a percent 2 percent reduction in petrol and HSD prices are also expected to contract by around 0.6 percent MoM. JS said that in its view, the abating inflation strengthens Monetary Policy Committee’s case for continuing the easing cycle in the September meeting with a third consecutive interest rate cut, this time of 150bp, bringing the Policy Rate down to 18 percent. The full report can be read here.