Two brokerage house said they see CPI-based inflation reading to post a steep decline, and hover around 13-14% in May 2024.

“May CPI is expected to clock in at 13.8%, significantly lower than recent months due to high base effect from last year and consecutive MoM declines,” said JS Global, a brokerage house, in a report on Tuesday.

The decline is primarily driven by lower food inflation, it said.

Pakistan’s headline inflation clocked in at 17.3% on a year-on-year basis in April, lower than the reading in March when it stood at 20.7%.

However, the key to watch is the inflation outlook from July onwards and the impact of the same on monetary policy, JS Global added.

The “SBP has highlighted the Federal Budget FY25 (7th June announcement) and implemented July onwards as a key determinant of monetary policy direction, alongside impact from implementation of International Monetary Fund’s (IMF) recommendations in its upcoming program,” said JS Global.

The central bank in its last Monetary Policy Committee (MPC) meeting, held on April 29, viewed that the level of inflation is still high

“Moreover, the upcoming budgetary measures may have implications for the near-term inflation outlook. On balance, the Committee stressed on the continuation of the current monetary policy stance to bring inflation down to the target range of 5–7% by September 2025,” the MPC said back then.

Meanwhile, Ismail Iqbal Securities, another brokerage house, in its separate report projected inflation reading to hit 13.1% in May.

“On MoM basis, inflation is estimated to decrease at 2.1%. The decline on MoM basis is mainly due to decline in food inflation i.e 5.6% (major decline in wheat/chicken/fresh fruits/onions/tomatoes) and downward FCA adjustment (1.8%) and high base effect,” it said.

Ismail Iqbal noted that the real interest rates are expected to reach their highest level in the last 20 years at 8.9%.

“Previously, the highest rate was 5.4% in April 2015,” it said.

“We believe that the substantial gap between the policy rate and the CPI will provide room for a rate cut in the upcoming MPC meeting,” said Ismail Iqbal, adding that the steep decline in inflation, largely driven by a decrease in food prices, was not anticipated at the beginning of the year.

Budget to drive inflation upwards

Authorities in Islamabad will present the budget for the next financial year 2024-25 in the National Assembly on June 7.

JS Global’s report believed that given the dire need to address the fiscal situation and secure a longer-term IMF plan, budget is likely to carry higher levies and taxes.

“We run CPI sensitivity on i) PDL rising to Rs100/ltr (from Rs60) and GST to 18% (from 0%) i.e. cumulative jump of Rs101/ltr (+37%) in POL price and ii) 10% MoM increase in food and restaurant prices due to second-round impact.

“The combined impact would take inflation to a chunky +6.5% MoM (18% YoY) for July. Building in a further 85 basis point (bp) MoM for remaining months would take FY25 CPI to 15%,” it said.


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