Inflationary pressure is likely to subside further in Pakistan and come down to single digits from August onwards, said JS Global in a report on Thursday.

“Pakistan is likely to enter the single-digit inflation territory for the first time in three years from Aug-2024, as we expect CPI to clock in at 9.3% YoY, with a 10bp MoM uptick,” said the brokerage house.

The report said sequential price increases in food, which account for 35% weight in the CPI basket, are expected to outpace the decline in energy prices.

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 headline inflation was recorded at 11.1% year-on-year in July 2024, down from 12.6% in June 2024. This marked the lowest CPI figure since November 2021, when it stood at 11.5%, according to data from the Pakistan Bureau of Statistics (PBS).

“While Aug-2024 (expected) reading is poised to propel real interest rates (RIR) back to 10ppt+, last witnessed in May-2024, Sep-2024 reading potentially dipping below 8.5% would further expand RIR closer to 11ppt, a level last recorded in mid-1998,” the brokerage house added.

“In our view, the abating inflation strengthens Monetary Policy Committee’s case for continuing the easing cycle in the September meeting with a third consecutive interest rate cut, this time of 150bps, bringing the Policy Rate down to 18%. To note, shorter tenor secondary market yields currently trade ~200bps below the Policy Rate.”

Back in July, the State Bank of Pakistan (SBP) cut the key policy rate by 100 bps, taking it to 19.5%, arguing that there are “risks to the inflation outlook from fiscal slippages and ad-hoc decisions related to energy price adjustments”.