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May’s Headline Inflation Is Expected To Drop Below 14 Percent

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(CTN News) – The CPI-based inflation reading for May 2024, according to two brokerage houses, would decline significantly and fluctuate between 13 and 14 percent.

According to a report published on Tuesday by the brokerage firm JS Global, the CPI for May is “anticipated to register at 13.8%, which is considerably below recent months’ figures on account of a substantial base effect from the previous year and consecutive MoM declines.”

Inflation-driven declines were attributed to low food prices.

April witnessed a year-over-year headline inflation rate of 17.3% in Pakistan, a decrease from March’s reading of 20.7%.

However, according to JS Global, the most crucial factor to monitor is the inflation outlook beginning in July and how it will impact monetary policy.

The SBP “has highlighted the Federal Budget FY25 (7 June announcement and implementation beginning in July, as well as the impact of implementing International Monetary Fund (IMF) recommendations in its upcoming program” as a major factor in determining the course of monetary policy, according to JS Global.

During the most recent meeting of the Monetary Policy Committee (MPC), which occurred on April 29, the central bank maintained its stance that inflation remains elevated.

In addition, the imminent budgetary measures might have an effect on the emphasized the continuation of the current monetary policy stance to bring inflation down to the target range of 5–7% by September 2025.”

Ismail Iqbal Securities, an alternative trading firm, projected in a separate research that inflation would reach 13.1% in May.

The MoM inflation forecast is for a decline of 2.1%. Monthly fluctuations are primarily attributable to the high base effect and the 5.6% decline in food inflation (primarily for fresh fruits, vegetables, poultry, and wheat), in addition to the 1.8% decline in FCA adjustment.

Real interest rates are anticipated to peak at 8.9%, the greatest level in the previous two decades, per Ismail Iqbal.

The document stated, “Prior to this, the highest rate was 5.4% in April 2015.”

Ismail Iqbal said, “We think that the significant difference between the policy rate and the CPI will allow for a rate cut in the upcoming MPC meeting.” Additionally, he stated that the substantial decline in inflation, primarily attributed to decreased food prices, was not anticipated at the beginning of the year.

Budget for pricing increases

The budget for the fiscal year 2024–25 will be presented to the National Assembly by Islamabad authorities on June 7.

Based on an analysis by JS Global, it is anticipated that the budget will encompass escalated levies and taxes as a consequence of the pressing necessity to address the fiscal predicament and secure an extended IMF strategy.

“We conducted a CPI sensitivity analysis on two variables: (i) a 10% MoM increase in food and restaurant costs due to second-round impact; and (ii) a cumulative increase in POL price of Rs101/ltr (+37%) resulting from a PDL increase to Rs100/ltr (from Rs60) and GST increase to 18% (from 0%).

“The cumulative effect would significantly increase July’s inflation to a +6.5% MoM (18% YoY) level.” It was specified that the CPI for FY25 would increase to 15% by adding an additional 85 basis points (bp) MoM for the remaining months.

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Alishba Waris is an independent journalist working for CTN News. She brings a wealth of experience and a keen eye for detail to her reporting. With a knack for uncovering the truth, Waris isn't afraid to ask tough questions and hold those in power accountable. Her writing is clear, concise, and cuts through the noise, delivering the facts readers need to stay informed. Waris's dedication to ethical journalism shines through in her hard-hitting yet fair coverage of important issues.

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