Pakistan inflation expected to fall to 4-year low in September

Pakistan's disinflation trend is expected to continue in September, with figures falling to a four-year low

According to a survey conducted by Nukta, analysts predict that inflation will fall to 7.5%, the lowest level since January 2021, when it stood at 5.7%. This decline is largely attributed to a favorable base effect from the high inflation rates in the previous year.

The anticipated drop in September’s inflation rate will bring the average inflation for the first quarter of fiscal year 2024-25 (FY25) to 9.4%, a substantial decrease from the 29% average recorded in the first quarter of FY24.

Sana Tawfik, head of research at Arif Habib Limited, noted in a report that projections for September suggest that inflation will decline slightly by 0.2% from August. Key indices contributing to this trend include the food index, which is expected to decline by 0.3% due to decreasing prices of wheat, tomatoes, chicken and fresh fruits.

Additionally, the transport index is projected to drop by 2.8%, largely due to a decline in petroleum product prices. Furthermore, the housing index is anticipated to decline by 0.7% due to a reduction in electricity charges.

Amreen Soorani, head of research at JS Global Capital, said that the Consumer Price Index could potentially bottom out at 6% by March 2025, after which CPI readings may rebound up to 12% by June 2025, later normalizing at 10.5%.

These projections incorporate steady oil prices and gradual PKR depreciation. Any favorable trend in either, or both, would further reduce the CPI pace.

The declining inflation trend continues to support the central bank's argument for further interest rate reductions at an upcoming meeting of the Monetary Policy Committee on November 4. A fourth consecutive interest rate cut, this time of 150 basis points, is expected in November, bringing the policy rate down to 16%.