Pakistan inflation seen easing further in December

Pakistan’s headline inflation is expected to ease further in December, driven largely by falling food and fuel prices, though pressure from housing and energy costs continues to weigh on consumers, according to reports by Arif Habib Ltd., Al Habib Capital Markets Ltd. and Sherman Securities.

Arif Habib Ltd. said headline inflation for December is projected at about 5.8% year-on-year, down from 6.2% in November, though still higher than the 4.1% recorded in November last year.

Core inflation, which excludes food and energy, is forecast at 7.8%, showing a sharp moderation from 9.3% a year earlier.

On a monthly basis, Arif Habib Ltd. expects consumer prices to decline by around 0.3%, mainly due to easing food and transportation costs.

The food index is projected to contract 1.4% month-on-month, led by sharp declines in prices of perishable items such as tomatoes, onions and potatoes, while the transport index is expected to fall 0.7% as petroleum prices ease.

The brokerage said average headline inflation for the first half of fiscal year 2025-26 is likely to settle near 5.1%, significantly lower than 7.3% in the same period last year.

Average core inflation for the half-year is expected to moderate to 7.5% from 10.9%.

Looking at the full calendar year, Arif Habib Ltd., projects average CPI inflation in 2025 at 3.54%, the lowest level in a decade, while non-food, non-energy inflation is expected to average 7.96%.

Al Habib Capital Markets Ltd., however, painted a slightly firmer picture, forecasting December headline inflation at around 6.1% year-on-year, marginally lower than 6.15% in November. On a monthly basis, it expects prices to remain largely flat, compared with a 0.4% increase in the previous month.

Al Habib Ltd. said year-on-year inflation is being driven mainly by the heavily weighted housing group, citing sharp increases in electricity and liquefied petroleum gas prices.

Electricity tariffs rose 17.6% month-on-month after the National Electric Power Regulatory Authority approved a PKR 0.32-per-unit quarterly adjustment effective from December through February, while LPG cylinder prices increased about 9% following higher international prices set by Saudi Aramco.

The firm said the food index is expected to rise 3.5% year-on-year, reflecting higher prices of staples such as flour, up 20.8%, and chicken, up 16.1%, despite steep declines in vegetables. Potato prices fell 45.1% from a year earlier, onions dropped 31.9% and tomatoes declined 52.1%, suggesting improved crop yields after last year’s floods and reduced exports to Afghanistan due to border closures.

Transport inflation is expected to decline 1.6% month-on-month, Al Habib Ltd., said, as lower international oil prices pushed diesel prices down to about PKR 266 per liter in December from an average of PKR 275.1 in November.

Sherman Securities offered a more optimistic estimate, projecting headline inflation at around 5.5% year-on-year in December, down from 6.1% in November. It expects consumer prices to fall 0.5% on a monthly basis, led by a 1.2% drop in food inflation and lower prices of petroleum products.

Sherman warned, however, that upcoming Ramadan and Eid festivities could add pressure to prices in the coming months.

The government and the State Bank of Pakistan have projected cumulative inflation for fiscal year 2025-26 in the 5% to 7% range, citing improved economic conditions.

Al Habib noted that the International Monetary Fund expects average CPI inflation of about 6.3%, while it sees inflation averaging closer to 7.2%, slightly above the central bank’s target band but well below the 10-year average of 10.8%.

Pakistan’s central bank is scheduled to announce its next monetary policy decision on Jan 26. Al Habib said it expects no interest rate cut despite room for a possible 50-basis-point reduction, citing a widening trade deficit, even as real interest rates remain elevated and global oil prices trend lower.