Consumer Price Index (CPI)-based inflation in Pakistan is expected to decline further and may clock in at around 20% level on a year-on-year (YoY) basis in March, lower than 23.1% recorded in February.
“The projected YoY headline inflation rate for March 2024 is expected to be 20.2%, reflecting a decline from the previous month, February 2024, which reported a YoY inflation rate of 23.1%,” said Arif Habib Limited (AHL) in a report on Thursday.
“Additionally, when compared to the same period in the previous year (March 2023), a significant decrease in headline inflation is anticipated, as it was registered at 35.4% YoY during that period. As a result, it is expected that the average CPI for 9MFY24 will remain approximately flat at around a 27.2% YoY level, mirroring the figures observed during SPLY,” added the brokerage house.
On a monthly basis, AHL projections for March 2024 suggest an increase of 1.3%, contrasting with the average MoM increase of 1.7% observed over 8MFY24.
“This uptick in monthly inflation is primarily attributed to rises in the food index (+1.3% MoM), transport index (+1.5% MoM), and housing index (+2.9% MoM),” it said.
The brokerage house said the increase in the food index, driven by the Ramadan factor, is expected due to a MoM surge in prices of fresh fruits, potatoes, onions, and tomatoes. “Meanwhile, the housing index is anticipated to increase mainly due to an uptick in gas tariff and LPG prices. Additionally, the transport index is expected to stay elevated due to a MoM increase in petroleum product prices,” it added.
“Looking ahead, headline inflation is projected to decline mainly due to a significant base effect,” said AHL, while noting that fluctuations in food prices, potential depreciation of the local currency, ongoing rises in international oil prices, and fiscal/budgetary actions following entry into a new International Monetary Fund (IMF) programme could affect these forecasts.
Meanwhile, IGI Securities, another brokerage house, estimated national CPI to clock in at 20.3% year-on-year growth.
“On a monthly scale, March 2024 is estimated to show a +1.4% month-on-month growth compared to +0.0% month-on-month in February 24,” it noted.
IGI Securities noted that during March 2024, key food items including meat, potatoes, onions, tomatoes, and sugar have increased over the previous month whereas prices of chicken, rice, eggs, and wheat flour have dropped. Meanwhile, the transport index is expected to post a modest increase of ~+0.8% during March 2024, due to a fuel price hike.
Similar to AHL’s projections, IGI Securities expects CPI is likely to continue its downward trajectory in the coming months due to a high base effect.
“However, as Pakistan plans to enter into a long-term programme, new tax measures recommended by IMF will have inflationary impact,” it noted.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) in its last meeting observed “that despite the sharp deceleration in February, the level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations. This warrants a cautious approach and requires continuity of the current monetary stance to bring inflation down to the target range of 5–7% by September 2025.”
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