Pakistan’s inflation rate is poised to fall significantly in May, with projections indicating a drop below 14% for the first time in several months.
According to a Consumer Price Index (CPI) preview, the nation’s headline inflation is expected to decelerate to approximately 13.9% year-on-year (YoY) in May 2024.
This notable reduction is attributed to a considerable decline in monthly prices, supported by a favorable base effect. Monthly inflation is projected to fall by 1.4%, marking the second consecutive monthly decline and significantly lower than the 12-month average increase of 1.35% month-on-month (MoM).
The primary drivers behind this decrease include a 440 basis points (bps) drop in the Food index, resulting from deflated prices of essential commodities such as onions, tomatoes, chicken, and wheat. Additionally, the Transport index is anticipated to decrease due to lower fuel prices.
The CPI preview also suggests that if consumer prices continue to rise at an average rate of 0.5% per month, annual inflation could drop to around 7.4% by the end of December 2024. Even with a 1% monthly increase, annual inflation is expected to fall to approximately 11.7% by year-end.
This development is expected to bring much-needed relief to consumers and businesses, as inflation has been a significant economic concern. The projected decrease in inflation is also likely to push real interest rates above 8%, potentially making borrowing more attractive for investors.
The anticipated slowdown in inflation underscores positive implications for the economy, providing a hopeful outlook for the remainder of the year.