Pakistan’s CPI-based inflation expected to decline to below 24%

WEB DESK: In a recent report, Arif Habib Limited (AHL) revealed that consumer price index (CPI)-based inflation in Pakistan is poised to decrease, projecting a year-on-year (YoY) rate of 23.5 per cent for February 2024.

This marks a notable reduction from the 28.3 per cent recorded in January.

AHL’s analysis suggests that the anticipated YoY headline inflation for February 2024 reflects a downward trend compared to the preceding month.

The brokerage house predicts an average CPI of approximately 28.1 per cent YoY for the first seven months of the fiscal year 2024, contrasting with the 26.2 per cent YoY rate observed in the same period of the previous fiscal year.

Furthermore, AHL’s projections indicate a decline in the average core inflation for February to 18.6 per cent YoY, showcasing a decrease from the previous month’s figure of 20.8 per cent.

The report also outlines a month-on-month increase of 0.4 per cent for February, differing from the average monthly increase of 1.93 per cent observed in the initial seven months of fiscal year 2024.

The brokerage house attributes the rise in monthly inflation primarily to increases in the transport index (2.5 per cent MoM) and housing index (2.0 per cent MoM).

Notably, the food index is expected to decrease MoM (-0.9 per cent), mainly due to lower prices of items such as eggs, onions, tomatoes, oil, and ghee.

AHL highlights that the housing index is anticipated to rise, primarily driven by an increase in gas tariffs, a factor factored into their base case assumption.

Additionally, the transport index is expected to remain elevated due to a month-on-month increase in petroleum product prices.

Looking ahead, AHL anticipates a decrease in headline inflation, primarily influenced by the significant base effect.

However, potential fluctuations in food prices associated with Ramadan, the likelihood of PKR depreciation against the USD, and continuous increases in international oil prices could impact these forecasts.

In the context of recent developments, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) maintained the key policy rate at 22 per cent in the previous month.

The MPC revised the inflation projection for fiscal year 2023–24 from 20–22 per cent to 23-25 per cent, considering the recent energy tariff hikes.

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