ISLAMABAD: The rate of inflation projected to shrink below 2% in Feb, overall decline primarily attributed to significant drop in food prices.
The projection is based on the first week’s data from the Sensitive Price Index (SPI), which also suggests a month-on-month (MoM) CPI decline of 0.37%.
The prediction comes against the backdrop of headway in restoring economic stability and rebuilding external buffers as highlighted by Fitch Ratings saying that rapid disinflation reflected fading base effects from earlier subsidy reforms and exchange rate stability, supported by a tight monetary stance that subdued domestic demand and external financing needs.
Expecting real value-added growth of 3.0% in FY25, it noted that the economic activity is now benefiting from stability and falling interest rates, having absorbed tighter policy settings.
The overall decline is primarily attributed to a significant drop in food prices, with the food index registering a 1.7% month-on-month (MoM) decrease. The sharpest declines were seen in essential commodities such as tomatoes, onions and potatoes.
Conversely, transport costs edged up by 1.4% MoM, driven by a slight increase in petroleum prices. Meanwhile, the housing index fell by 0.2% MoM due to higher negative Fuel Cost Adjustment (FCA) adjustments.
AHL’s sensitivity analysis indicates that inflation could fluctuate within a broader range depending on month-on-month changes. If MoM inflation shifts between -1.5% and +1.5%, the CPI for February could vary between 0.8% and 3.9% YoY.
The anticipated decline in inflation aligns with expectations of easing price pressures, potentially influencing monetary policy decisions in the coming months.
The CPI inflation eased significantly to 2.4% YoY in January 2025, down from 4.1% in December and a staggering 28.3% recorded in January 2024, according to data released by the Pakistan Bureau of Statistics (PBS) on Monday.
In FY23, inflation reached over 29%; inflation touched an all-time high of 37.97% in May 2023. However, it has been on a downward trajectory since then.
On a month-on-month basis, CPI inflation edged up slightly by 0.2% in January, compared to a 0.1% increase in the previous month and a 1.8% rise in January 2024. According to brokerage firm Topline Securities, inflation during 7MFY25 has averaged 6.5% compared to 28.7% in 7MFY24. It further adds that this is the “lowest reading in 111 months (over nine years)”.
