Brokerage houses see inflation rate in Pakistan to go over 12% in June

Two brokerage houses said they see CPI-based inflation reading inching slightly higher, and hovering around 12-13% in June 2024.

“CPI for Jun-2024 is projected at 12.5% YoY (bringing FY24 average to 23.8%), continuing a lower trend that started from last month (11.8%) compared to 17.3% recorded in April-2024 and a significant decline from 29.4% in Jun-2023,” said brokerage house JS Global in a report on Friday.

This disinflationary trend, already anticipated, is driven by a high base effect from last year’s spike, it said.

“However, two consecutive MoM declines in CPI have accelerated the pace. Following a 325bp MoM decrease in May-2024, we expect CPI to rebound from Jun-2024 (+39bp MoM),” it noted.

Pakistan’s headline inflation clocked in at 11.8% on a year-on-year basis in May, much lower than the reading in April when it stood at 17.3%.

JS Global said food prices are expected to keep dropping in June, marking the third straight month of decline and the fifth in seven months.

“June is expected to see a 37bp MoM decrease in food inflation, following an 8% MoM drop in April. This translates to a YoY food inflation rate of just 0.5% in June, a significant improvement from 39% in Jun-2023,” it said.

AKD Securities Limited, another brokerage house, in a separate report, projected inflation to register a 12.55% YoY increase against 11.76% YoY in the previous month.

“On a monthly basis, it is likely to ascend by 0.45%, following a slight rebound in vegetable prices due to ongoing festivities during the current month,” it added.

AKD said with both food and fuel indexes bottoming out in May’24, we anticipate near-term CPI readings to remain highly susceptible to the upcoming inflationary hikes announced in the Federal Budget.

“Additionally, any further rebounds in essential commodity prices driven by a pullback in crude oil in the wake of global monetary easing, alongside moderate weakness in the domestic currency, if any, may keep disinflationary prospects in check,” it added.

Authorities presented the budget for the next financial year 2024-25 in the National Assembly on June 12, as Islamabad looked to appease the International Monetary Fund (IMF) and balance its burgeoning books with higher taxation.

JS Global report believed that budgetary measures were milder than earlier expected.

“With Federal Budget FY25 announced, we run a sensitivity analysis regarding potential upward pressures on inflation expected from July. The measures are a downward revision from our earlier expectations where we now incorporate Rs20/ltr increase in POL product prices with revised PDL (previously, Rs40/ltr), no sales tax on POL products (previously 18%) and 4% MoM higher food and allied segment prices (previously 10% MoM). We also factor in higher power (+60%) and gas tariffs (+20%) from July,” it said.

“Under this scenario, MoM CPI is estimated to surge by 500bp in July-2024 against 650bp expectation earlier,” it added.