Pakistan's inflation to ease to a 6-year low in November 2024

Pakistan's inflation rate is continuing to fall sharply, with a Consumer Price Index (CPI) expected to reach a 6-year low in November 2024, analysts say.

The CPI is predicted to drop to 4.7% in November 2024, down from 7.2% in October 2024, said Mohamad Waqas at JS Global Capital.

Sana Tawfik at Arif Habib Limited also projected a similar drop in inflation for November 2024.

This significant decrease is largely due to the high base effect from last year's soaring inflation.

Despite a monthly increase of 0.32% in headline inflation, the average inflation rate for the first five months of the fiscal year 2025 (5MFY25) is expected to be 7.9%, down from an average of 28.6% in the same period last year.

Looking ahead, analysts expect fuel prices to increase by Rs10 per liter through the Petroleum Development Levy (PDL) and a reduction in the price gap between fresh and packaged milk.

Regular increases in gas and power tariffs are also anticipated. These factors could push the average inflation rate for FY25 to 8.4%. However, if there are no additional PDL charges and milk prices normalize, the average inflation could drop to around 7%.

If global commodity and energy prices stay low and the Pakistani Rupee remains stable, it will support further disinflation. While the broader economic stability has been achieved, maintaining fiscal discipline and implementing structural reforms are essential for sustainable economic growth.

The State Bank of Pakistan (SBP) has already cut interest rates in the last three Monetary Policy Committee (MPC) meetings this fiscal, as the real interest rate (RIR) hit 10%. The RIR is expected to remain near 10% until the next MPC meeting on December 16, 2024. Based on this, Muhamad Tahir at Sherman Securities expects the MPC to reduce the policy rate by 200 basis points.