Pakistan’s inflation likely to slow down further in September, fueling further rate cut speculation

The slowing inflationary trend in Pakistan is likely to continue in September, and projected to come down to almost a four-year low, said JS Global in a report on Saturday.

“Progressing through the ‘year of disinflation’ on favourable base effect from last year’s elevated prices, Pakistan’s Sep-2024 CPI [Consumer Price Index] is expected to clock in close to 7.5% - lowest in almost 4 years (since Jan-2021), despite a slight MoM [month-on-month] uptick,” said the brokerage house.

Inflation in Pakistan has been a significant and persistent economic challenge, particularly in recent years. In May of last year, the CPI inflation rate hit a record high of 38%. However, it has been on a downward trajectory since then.

Pakistan’s CPI reading clocked in at 9.6% on a year-on-year basis in August 2024, lower than the reading in July 2024 when it stood at 11.1%.

As per data released by the Pakistan Bureau of Statistics (PBS), the inflation reading was back into single digits after three years.

Meanwhile, the brokerage house projected CPI inflation to “potentially bottoms at 6% by Mar-2025 (real interest rate: 550bps)”.

“After which CPI readings may rebound up to 12% by Jun-2025 (real interest rate: 1150bps), later normalising to approximately 10.5%,” read the report, reflecting a MoM pace of 95bps, it added.

JS Global attributed these projections to steady oil prices and gradual PKR depreciation.

“Any favourable trend in either, or both, would further reduce the CPI pace,” it said.

Further policy rate cut on the cards

The declining inflation trend continues to support the Monetary Policy Committee’s argument for further reduction in interest rates at its upcoming meeting in November, the brokerage house said.

“A fourth consecutive interest rate cut, this time of 150bp, is expected in Nov-2024, bringing the policy rate down to 16%,” read the report.

In its last meeting, the MPC of the State Bank of Pakistan (SBP) unleashed its most aggressive cut in the key policy rate since April 2020, reducing it by 200bps to bring it down to 17.5% amid slowing inflation and declining international oil prices.