Pakistan’s inflation anticipated to lower further in December, easing cycle likely to continue

The slowing inflationary trend in Pakistan is likely to persist as the CPI-based figure is expected to clock in at 4% in December, marking a 6.5-year low, according to a report by brokerage house JS Global on Tuesday.

“Following a 4.9% reading in Nov-2024, the Consumer Price Index (CPI) is expected to drop to 4% in Dec-2024, marking a 6.5-year low continuing Pakistan’s current sharp disinflation trend,” stated the report.

The brokerage house attributed the declining trend to a favourable base effect from the mounting inflation of the previous year.

However, a meagre 1 basis point (bps) monthly increase in the headline inflation could be seen, it said. “This would take 1HFY25 average to 7.3%, down from 1HFY24 average of 28.8%.”

In November 2024, Pakistan’s headline inflation hit its lowest level since May 2018, clocking in at 4.9% on a year-on-year basis, a reading that was also below that of October 2024 when it stood at 7.2%, showed Pakistan Bureau of Statistics (PBS) data.

Meanwhile, JS Global projected core inflation to clock in at 10.8% YoY in December 2024, with a MoM uptick of 80bp. Whereas, food inflation for December 2024 is expected to remain flattish on a YoY basis (+0.03%) which was 27.5% last year, with a MoM drop of 23bp.

The brokerage house noted that elevated real interest rates provide room for a further policy rate cut.

“Despite a recent 200bps cut in the policy rate during this month taking a cumulative cut in the last 6 months to 900bps, the ongoing sharp disinflation maintains a high real interest rate (RIR) level. This trend of declining inflation strengthens the Monetary Policy Committee’s case for continuing the easing cycle in its next meeting, in our view,” it said.

The State Bank of Pakistan (SBP) in its last MPC reduced the key policy rate by 200 basis points to take it down to 13%. This was the fifth successive cut since June 2024 when the rate stood at 22%.