Inflation likely to drop below 3% in January

JS Global, in a report on Wednesday, projected inflation at 2.8% for Jan, marking the lowest rate since November 2015.

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Pakistan’s Consumer Price Index (CPI)-based inflation is expected to continue its downward trend, potentially dropping below 3% in January 2025, according to market analysts.

JS Global, in a report on Wednesday, projected inflation at 2.8% for January, marking the lowest rate since November 2015. "The ongoing sharp disinflation trend is expected to persist despite a 0.6% month-on-month uptick, due to the high base effect," the report stated.

This would bring the average inflation for the first seven months of FY25 (7MFY25) down to 6.7%, a significant improvement from the 28.7% recorded during the same period in FY24.

Ismail Iqbal Securities Limited echoed this sentiment, forecasting inflation at 2.9% for January, a sharp decline compared to 28.3% in January 2024.

In December 2024, headline inflation in Pakistan stood at 4.1% year-on-year, down from 4.9% in November, according to data from the Pakistan Bureau of Statistics (PBS). The consistent decline in inflation has bolstered expectations for further cuts in the central bank’s key policy rate.

"The persistent decline in inflation strengthens the Monetary Policy Committee’s (MPC) case for continuing the easing cycle," said JS Global. The brokerage house expects a 100 basis point (bps) cut in the upcoming policy meeting, albeit smaller than previous reductions.

Ismail Iqbal Securities also anticipates a 100 bps cut but cautioned that the MPC may adopt a more measured approach after this adjustment.

"While the current inflation environment is favorable, pressures may reemerge starting May 2025 as the base effect diminishes, potentially pushing headline inflation upward," the report warned.

The State Bank of Pakistan (SBP) has already reduced the policy rate by 900 bps since June 2024, with the most recent cut of 200 bps bringing the rate to 13%.

While the sharp decline in inflation offers temporary relief to consumers and businesses, experts warn that the impact of a diminishing base effect could lead to upward pressures on prices later in the year.

The MPC is expected to monitor inflation trends closely in the coming months to strike a balance between growth and price stability.