A recent report by Insight Securities indicates that Pakistan’s annual consumer price inflation is expected to decline further in September, primarily due to the high base effect from the previous year.
Projected Inflation Rate
The report projects that inflation will fall to 7.3% in September, down from 9.6% in August and a staggering 31.4% in September 2023. This decrease marks a significant trend towards lower inflation rates after a period of heightened economic challenges.
Contributing Factors to the Decline
Several factors are contributing to this anticipated decline:
- High Base Effect: The comparison against last year’s elevated inflation rates is a crucial factor.
- Monthly Decrease: The report notes a slight month-on-month decrease of 0.1%, mainly driven by declines in the housing and transport indices.
Housing and Transport Indices
- Housing Index: This index is expected to decrease by approximately 1.1% on a monthly basis, influenced by negative adjustments related to fuel costs.
- Transport Index: A reduction of 1.6% is anticipated in this index, also attributed to falling fuel prices.
Upcoming Inflation Figures
Official inflation figures for September are expected to be released early next week, likely on Tuesday.
Government Economic Outlook
The government’s recent economic outlook suggests that inflation will be in the range of 8% to 9% for September and October. This projection coincides with a series of interest rate cuts by the central bank, which has reduced the benchmark rate by 450 basis points over the last three monetary policy meetings.
Future Inflation Predictions
According to Insight Securities, as inflation readings continue to ease, a further 100 basis point reduction in the policy rate is anticipated during the upcoming Monetary Policy Committee (MPC) meeting scheduled for November 2024. The report estimates that headline inflation may reach its lowest point in January 2025, projected between 5.5% to 6%, before potentially increasing again due to the low base effect.
Support from the International Monetary Fund (IMF)
This week, the International Monetary Fund (IMF) approved a $7 billion funding package for Pakistan, providing a much-needed boost to the country’s economy. The State Bank of Pakistan has already received the first tranche of $1 billion.
The approval of the IMF loan program, combined with controlled external accounts, grants policymakers some leeway to guide the economy towards a sustainable growth path after achieving a degree of stability over the past year.
Conclusion
Looking ahead, factors such as lower crude oil prices and a stable currency are expected to significantly influence the trajectory of inflation in Pakistan. To ensure long-term economic growth, prudent fiscal management and the gradual implementation of necessary reforms will be essential.
