Headline inflation in Pakistan is anticipated to decrease to 4.7% in December 2024, marking its lowest level in 80 months, according to analysts at Insight Securities (Pvt) Limited. This significant reduction in inflation is primarily attributed to a favorable base effect and a decline in transport costs, driven by lower fuel prices.
However, on a month-on-month (MoM) basis, the Consumer Price Index (CPI) is expected to see a slight uptick of 0.7%. This moderate increase is attributed to higher costs in the clothing and food categories. The clothing index is expected to rise due to increased prices of woolen garments and footwear. Similarly, the food basket is projected to climb by 0.5% MoM, driven by higher costs for vegetables and cooking oils.
Within the Sensitive Price Indicator (SPI) basket, there were notable price hikes in several items, such as footwear (12.5%), tomatoes (9.8%), potatoes (9.1%), vegetable ghee (7.1%), and fresh vegetables (6.9%). On the other hand, some items experienced price reductions, including chicken (-12.7%), pulse gram (-6.1%), onions (-3.6%), pulse mash (-3.2%), and pulse masoor (-2.5%).
For the entire year of 2024, inflation is expected to average 13.2%, a significant decrease compared to the 30.9% inflation rate recorded in 2023. This sharp decline has prompted the central bank to maintain an accommodative monetary policy stance, reducing the policy rate by 900 basis points from 22% in June 2024 to 13% by December 2024. Analysts forecast that inflation will average around 7% in FY25, though it may gradually rise after the first quarter of 2025.
Despite the overall decrease in headline inflation, core inflation remains a concern. Urban core inflation for December 2024 is projected to be around 8.9%, while rural core inflation is expected to be 11.2%. The persistence of core inflation, combined with the delayed transmission of the central bank’s rate cuts, has tempered expectations for further aggressive monetary easing.
Additionally, the recent increase in credit offtake raises concerns over potential demand-side pressures on the economy. While inflation has moderated significantly, analysts advise caution to ensure sustained economic stability. With inflation trends showing improvement, Pakistan’s economic outlook for 2025 will likely rely on prudent fiscal and monetary measures to maintain stability.