Inflation to drop below 3% in Jan

• JS Global forecasts inflation to shrink to 2.8%.
• Cites high base effect as driving factor behind drop.
• Also anticipates 100bps cut in policy meeting.
  

KARACHI: Amid ongoing efforts by the current administration to improve economic indicators, the inflation in the country is expected to continue its downward trajectory, potentially dipping below 3% in January, The News reported on Friday.

A report issued by JS Global forecasts that Consumer Price Index (CPI) inflation for January 2025 could fall to 2.8%, marking the lowest level since November 2015, driven by a high base effect despite a modest 0.6% month-on-month increase.

This would bring the average inflation for the first seven months of the fiscal year to 6.7%, a significant drop from the 28.7% recorded in the same period of the previous fiscal year.

Ismail Iqbal Securities Limited echoed this view, projecting January inflation at 2.9%, a sharp decline from 28.3% in the same month last year, reflecting a significant easing of price pressures.

In December 2024, headline inflation clocked in at 4.1% year-on-year, down from 4.9% in November, according to the Pakistan Bureau of Statistics (PBS). The consistent decline in inflation readings is expected to embolden the central bank to further cut its key policy rate.

JS Global anticipates another rate cut this month, albeit a smaller reduction of 100 basis points compared to the sharp cuts seen previously. Ismail Iqbal also expects a 100bps cut in the upcoming policy meeting, followed by a cautious pause or minor adjustments to monitor inflation trends.

While the current inflation environment is favourable, both brokerages cautioned that pressures may re-emerge starting in May 2025 as the base effect diminishes, potentially pushing headline inflation upwards.

The State Bank of Pakistan (SBP) last month cut its policy rate by 200bps to 13%, marking a cumulative reduction of 900bps since June across five consecutive monetary policy decisions.

The forecast comes as the inflation dropped to 1.8% year-on-year for the week concluding on January 9 —  the lowest since October 2014.

The decline in inflation was largely attributed to a high base effect, according to independent economists who said that while the numbers are improving, the average consumer continues to feel the pinch.