Pakistan inflation expected at 3% in Jan, creating room for further rate cut

Inflation in Pakistan is anticipated to continue its downward trajectory, driven by the high base effect.

According to Nukta research, the inflation rate for January is forecasted to ease to 3.06% compared to the same period last year. This would lead to a real interest rate of 9.94%, which is still high compared to the historical average and gives the central bank considerable room to implement another rate cut during the upcoming monetary policy meeting.

Additionally, the prime minister has hinted that interest rates may fall into single digits.

However, the inflation rate is expected to be 0.84% higher compared to December.

The Pakistan Bureau of Statistics has also released weekly inflation data for the first week of January, showing a 0.26% decrease on a weekly basis and a 3.97% increase compared to the previous year. The weekly inflation decline follows three consecutive weeks of increases.

This reduction in weekly inflation is attributed to price drops in items like tomatoes (13.48%), potatoes (5.59%), pulse gram (0.34%), eggs (0.23%), garlic (0.21%), LPG (0.18%), wheat flour (0.09%), and pulse mash (0.05%).

Conversely, significant price hikes were recorded for chicken (10.28%), onions (4.93%), bananas (1.68%), diesel (1.18%), pulse moong (1.08%), sugar (0.95%), gur (0.58%), firewood (0.55%), vegetable ghee (0.53%), and petrol (0.21%).

January inflation breakdown

The food index is expected to rise by 1.0% due to price increases in certain food items, although some prices have fallen. While chicken, onions, bananas, pulse moong, sugar, and gur have seen price increases, tomatoes, potatoes, pulse gram, eggs, and garlic have experienced declines.

The housing index is projected to rise by 1.18% month-on-month, largely due to an increase in the house rent index. Additionally, the negative FCA for November has decreased to PKR 0.75 per unit from PKR 1.14 per unit in October. This adjustment will be reflected in consumers' January electricity bills when the FCA for November is applied.

Furthermore, the transport index is expected to also rise by 0.2% in January, primarily due to increases in petrol and diesel prices.