December inflation expected at 3.98%; Monetary easing to continue

Inflation in Pakistan is expected to maintain its downward trend due to the impact of a high base effect. According to Nukta Research, the inflation rate for December is projected to reach 3.98% compared to the same period last year. This would result in a real interest rate of 11.02%, providing the central bank with ample space to implement another rate cut during the upcoming monetary policy meeting on December 16th.

The inflation reading is expected to remain flat compared to November.

The Pakistan Bureau of Statistics released its weekly inflation data for the first week of December, showing a 0.34% decrease WoW and a 3.57% rise YoY. The weekly inflation was at six-year low, last recorded in 2018.

The weekly downturn was primarily driven by lower food prices, although there were significant price drops in tomatoes (down 25.15%), chicken (down 9.9%), pulse mash (down 1.67%), pulse gram (down 0.73%), and wheat flour (down 0.71%). On the other hand, the prices of garlic, vegetable ghee, potatoes, sugar, and onions rose by 1.83%, 1.72%, 1.69%, 1.33%, and 1.10%, respectively.

December inflation breakdown

The food index is anticipated to remain stable, with a slight decrease of 0.2% compared to November, due to mixed trends within the basket. While prices for wheat flour, chicken, and tomatoes have dropped, the prices of ghee, oil, eggs, potatoes, garlic, and honey have increased.

The housing index is expected to decrease by 0.8% MoM due to the negative fuel charge adjustment (FCA) of PKR 1.14 per unit, which was approved for October and will take effect in December.

The fourth quarterly tariff adjustment (QTA) of PKR 1.74 per unit for FY 2023-24 expired in November 2024. NEPRA has published its decision for the first quarter for FY 2024-25, approving a positive quarterly adjustment of PKR 1,187 million for December 2024, at a uniform rate of PKR 0.20 per unit. As a result, the QTA will decrease by PKR 1.54 per unit in December, and the electricity tariff index is expected to drop by 3.9%, leading to a 0.85% decrease in the housing index for the month.

Additionally, the transport index is projected to rise by 1.1% in December due to the increase in petrol and diesel prices.