Pakistan's inflation expected to ease to 3-year low in August

Pakistan's headline inflation is projected to ease to single digits in August, marking a three-year low, according to a survey of brokerage houses and banks conducted by Nukta.

The market expects August inflation to be around 9.7% year-on-year (YoY). It would be the first time inflation has been in the single digit-range since October 2021 when it was measured at approximately 9.2%.

The country's inflation had skyrocketed to a record 38% last May and was measured at 27.4% in August 2023. However, it has been easing consistently in recent months with July inflation at 11.1%.

Among the 11 institutions surveyed, Topline Securities projected the highest inflation rate at 10%, whereas JS Global Capital forecasted the lowest at 9.3%.

Inflation was recorded at 23.4% in fiscal year 2023-24, exceeding the target of 21%. The government has set a target of 12% for the this fiscal year, but the International Monetary Fund (IMF) expects inflation to remain significantly higher than the official figures. Analysts predict that inflation for FY25 will average between 10.0% and 10.5%.

Secondary market yields have declined in recent weeks, anticipating a further reduction in the policy rate. The cut-off yields of Pakistan treasury bills also dropped by up to 148 basis points in the auction held on August 21.

Looking ahead, the inflation trajectory will largely depend on the approval of the IMF program, which is crucial for maintaining stability in the local currency. Additionally, international commodity prices will play a significant role, as any increase could adversely affect Pakistan's fragile economic stability.