Two brokerage houses anticipate a significant drop in CPI-based inflation for May 2024, expecting it to hover around 13-14%.
JS Global, in a report on Tuesday, projected May’s CPI at 13.8%, attributing the decrease to a high base effect from last year and consecutive month-on-month declines. The decline is mainly due to lower food inflation, the brokerage noted.
In April, Pakistan’s headline inflation was 17.3% year-on-year, down from 20.7% in March. However, JS Global emphasized the importance of monitoring the inflation outlook from July onwards and its impact on monetary policy.
JS Global highlighted that the State Bank of Pakistan (SBP) sees the Federal Budget FY25 and the implementation of IMF recommendations as key factors influencing future monetary policy. In its last Monetary Policy Committee (MPC) meeting on April 29, the SBP stated that despite the current high inflation, budgetary measures could affect near-term inflation. The MPC stressed maintaining the current monetary policy to bring inflation to the 5-7% target range by September 2025.
Ismail Iqbal Securities, another brokerage, forecasted a 13.1% inflation rate for May. They estimated a 2.1% month-on-month decrease, driven by a 5.6% drop in food inflation and a 1.8% downward FCA adjustment, along with the high base effect. They noted real interest rates could reach an 8.9% high, the highest in 20 years.
Ismail Iqbal suggested that the gap between the policy rate and CPI might allow for a rate cut in the upcoming MPC meeting. They mentioned that the unexpected sharp decline in inflation, largely due to falling food prices, was not anticipated earlier this year.
The upcoming budget for FY25, to be presented on June 7, is expected to include higher levies and taxes. JS Global’s report indicated that to address fiscal challenges and secure a long-term IMF plan, the budget might increase the PDL to Rs100/liter and GST to 18%. This could cause a significant rise in inflation, with a projected monthly increase of 6.5% in July and an annual rate of 18%. For FY25, they forecast a CPI of 15%, considering additional monthly increases.