Pakistan’s Headline Inflation Expected to Fall Below 14% in May

Pakistan’s annual inflation is expected to fall to 13.1 percent in May 2024 compared to 17.3 percent in April 2024, brokerage house Ismail Iqbal Securities said in its report on Tuesday.

According to the report, on a month-on-month (MoM) basis, inflation is estimated to decrease at 2.1 percent, following a 0.43 percent decrease in April 2024. The decline on MoM basis is mainly due to a decline in food inflation i.e. 5.6 percent (with a major decline in prices of wheat, chicken, fresh fruits, onions, and tomatoes) and downward FCA adjustment (1.8 percent) and high base effect.

The report further noted that real interest rates are expected to reach their highest level in the last 20 years at 8.9 percent. Previously, the highest rate was 5.4 percent in April 2015.

The report said that the tone of the State Bank of Pakistan (SBP) during the last Monetary Policy Committee (MPC) meeting was cautious. They emphasized the need to evaluate the impact of the budget and the IMF program to assess their effects on inflation.

The brokerage house said it believes that the substantial gap between the policy rate and the CPI will provide room for a rate cut in the upcoming MPC meeting. The steep decline in inflation, largely driven by a decrease in food prices, was not anticipated at the beginning of the year, it added.

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