Islamabad, Jan 17: Pakistan’s Consumer Price Index (CPI) for January 2025 is projected to drop significantly, reaching a nine-year low of 2.5% to 3.0% year-on-year (YoY). Topline Securities reports this sharp decline from last year’s CPI of 28.73% for the first seven months of the fiscal year.
The expected drop would bring the 7-month average for FY25 to 6.66%, a stark contrast to the previous year’s soaring inflation rate.
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Key Drivers of Food Inflation
Food inflation will rise by 0.52% MoM due to price hikes in essential items. Chicken prices will surge by 33%, sugar by 5%, and Pulse Moong by 4.6%. However, the prices of eggs, potatoes, fresh vegetables, and onions will drop by 15% to 29%.
This divergence in food prices will play a pivotal role in shaping the overall inflation outlook.
Housing, Utilities, and Transport Sectors
The housing, water, electricity, and gas segment is projected to see a 1.38% MoM rise in January 2025. This increase will primarily be driven by a 1.5% hike in rent expenses and a 0.8% increase in electricity prices due to the fuel price adjustment being lower than December’s levels. The transport sector is also likely to witness a slight uptick of 0.2% MoM, mainly attributed to relatively stable fuel prices.
Inflation Forecasts and Real Interest Rates
For the full fiscal year 2025, Topline Securities has maintained its inflation forecast between 6.5% and 7.5%. This outlook, however, could be subject to fluctuations based on changes in global commodity prices. The expected low inflation for January 2025 will drive real interest rates up, with estimates ranging from 1000 to 1050 basis points. This is significantly higher than Pakistan’s historical average of 200 to 300 basis points, making real returns more attractive for investors.
IMF and Central Bank Adjustments
The International Monetary Fund (IMF) has recently downgraded its inflation forecast for FY25 from 12.7% to 9.5%.
The central bank will lower its inflation projections, revising the forecast from 11.5% to 13.5%. The change will be discussed at the monetary policy meeting on January 27, 2025.
Pakistan will likely experience a much-needed reduction in inflation by January 2025, bringing relief to consumers and creating a favorable environment for investment, with the real interest rate showing significant growth.
However, global commodity price fluctuations could still have an impact on these projections.
