Signs of stability on the macroeconomic front are slowly but surely starting to reflect in consumer confidence – which is up sharply for October 2024 over the last month. The Consumer Confidence Index (CCI), jointly tracked by the State Bank of Pakistan and the Institute of Business Administration, now monthly, recorded a 450-basis points improvement over September 2024 – up 14.5 percent month-on-month. This is the highest index value in FY25 to date, but still lower by more than 5 percentage points from the most recent high of 40.7 recorded in June 2024.

Recall that September’s CCI was recorded at a 12-month low despite signs of marked improvement in inflation, exchange rate, current account, and reserves. The continuity of single-digit inflation seems to have played a big role in somewhat restoring consumers’ confidence. Although not part of the index questions, a visible improvement in terms of political stability after the PTI’s protests fizzled out unceremoniously last month, must have played a role in consumers having a slightly more positive view for the next six months.

On overall economic conditions, measured by the CCI, 65 percent of respondents still have a negative or very negative view. This is a massive improvement from last month, where negative and very negative views had reached a colossal 74 percent. Respondents with positive views also inched up by 6 percentage points, close to levels seen when the overall index breached 40 in June 2024.

While the Inflation Expectations Index (IEI) continues to show negative views outnumbering positive – with 68.5 percent of respondents having high inflation views for the next six months, it is an improvement of over 5 percentage points month-on-month. Expectations of energy inflation have subsided the most from the previous survey, as petroleum prices have been kept in check, whereas administered gas and electricity tariffs have also been held back.

That said, reduced inflation expectations do not necessarily mean consumers are expected to be on a buying spree in the near future. The diffusion index on questions related to the suitability of time to make a purchase of property, vehicle, or durable items in the next six months – although improved from a month ago – still remains abysmally low at nearly 30 percent. The purchasing power erosion in the last two years has undoubtedly taken a toll on savings and the increase in wages has barely kept pace with inflation. There is little surprise then that consumers’ view on employment stays exceedingly negative for the next six months, with more than half of respondents still seeing lower income levels a year later.

With the interest rates all set to continue the journey south and core inflation easing faster than earlier anticipated, there is every chance for consumer confidence to keep inching up in the final quarter of 2024. The recent political events related to the passing of bills from the parliament may also instill a sense of reduced political volatility, as more observers now see the current regime continuing with no apparent hurdles, legal or otherwise.