Pakistan’s inflation expected to fall to 78-month low

ISLAMABAD: Inflation in Pakistan is expected to continue its downward trend with Consumer Price Index (CPI) for November likely to fall below 5 per cent, marking the lowest level in 78 months.

This forecast, released by Topline Securities on Tuesday, projects the CPI to range between 4.5 per cent and 5 per cent year-on-year (YoY), with a monthly increase of 0.4 per cent.

The average inflation for the first five months of the ongoing fiscal year will be 7.91 per cent if this becomes a reality, a massive decline from 28.62 per cent during the same period in the previous year.

Inflation has been a big challenge for Pakistan’s economy, with a record high of 38 per cent reached in May 2023. However, it has steadily decreased since then.

For October, the CPI stood at 7.2 per cent YoY, slightly higher than 6.9 per cent recorded in September, according to the Pakistan Bureau of Statistics.

Topline Securities also noted that with inflation projected between 4.5-5.0 per cent for November, real interest rates are expected to rise sharply, reaching 10-10.5 per cent (1000-1050 basis points).

This is a significant increase compared to the historical average of 2–3 per cent. Such high real rates could pave the way for further cuts in the policy rate.

In its recent monetary policy meeting, the State Bank of Pakistan had already reduced the key interest rate by 250 basis points to 15 per cent, following a series of rate cuts since June.

Topline Securities anticipates the interest rate to fall further to 11-12 per cent by December 2025, based on an expected average inflation of 8.8 per cent for the next fiscal year.

The broking house also predicts that inflation in the current financial year will range between 7 per cent and 8 per cent, with the SBP’s latest communication suggesting that average inflation will be lower than the previous forecast range of 11.5 per cent to 13.5 per cent.

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