After months of unusually low inflation, prices in Pakistan are likely to rise again in May, with headline inflation expected to reach 2.7 per cent year-on-year, according to estimates by brokerage firm JS Global. This would be a noticeable jump from the 0.3 per cent recorded in April.
The increase is mainly due to what economists call the “base effect.” Last year’s extremely high inflation numbers had made recent figures appear much lower in comparison. But that effect is now starting to fade, allowing the data to reflect more typical pricing trends.
Official figures from the Pakistan Bureau of Statistics showed inflation slowing to just 0.3 per cent in April, following 0.7 per cent in March. That came on the heels of a turbulent 2023, when inflation peaked at a staggering 38 per cent in May, the highest level recorded since the government began tracking comparable data in July 1965.
JS Global says with the distorting base effect behind us, inflation is beginning to settle into more normal patterns. It expects average inflation for the first 11 months of the current financial year to come in at around 4.7 per cent. That’s a big drop from the same period last year, when it averaged 24.9 per cent.
Looking at what’s driving prices this month, food inflation is projected to rise by 1.4 per cent compared to May 2024, when it had actually declined. On the other hand, the cost of housing, gas and electricity is expected to fall by 3.3 per cent over the year, and by 2 per cent compared to April, mainly due to a recent cut in electricity tariffs.
Meanwhile, core inflation, which strips out the more volatile prices of food and energy, is still running high. It’s estimated to have stayed close to 9 per cent in April.
On the monetary policy front, the State Bank of Pakistan has already responded to cooling inflation by cutting interest rates. In its last meeting, the central bank reduced the key policy rate by 100 basis points, bringing it down to 11 per cent. This was the seventh cut since the easing cycle began, with a total reduction of 1,100 basis points from the peak rate of 22 per cent.
With inflation lower than expected, JS Global believes there’s still room for further rate cuts. The central bank is scheduled to meet again on June 16 to review its stance in light of the latest inflation data.
Inflation likely to jump to 2.7 per cent YoY as base effect fades
