Pakistan’s inflation rate continues to plummet, reaching record lows not seen in over six years. In December 2024, the Consumer Price Index (CPI) is projected to hit 4%, marking a sharp decline from last year’s soaring inflation levels. This disinflationary trend underscores Pakistan’s economic progress and signals the positive impact of recent monetary and fiscal measures.
A Historic Low: Key Highlights of December 2024 Inflation
According to reports by JS Global and Arif Habib Limited, Pakistan’s CPI for December 2024 is expected to:
- Decline to 4% YoY, the lowest since April 2018 when it stood at 3.96%.
- Record a meager 1 basis point (bps) monthly increase in headline inflation.
- Average 7.3% for the first half of FY2025, significantly down from 28.8% during the same period in FY2024.
This sharp disinflation has been primarily attributed to:
- A favorable base effect from last year’s mounting inflation.
- Stable global commodity prices and a steady Pakistani rupee.
- Declines in key indices like food, housing, and energy.
Core Inflation and Sectoral Trends
Core inflation (excluding volatile food and energy prices) is expected to clock in at 10.8% YoY in December 2024, with:
- Urban core inflation at 8.9% YoY.
- Rural core inflation at 10.9% YoY.
Food and Housing Trends
- Food inflation: Expected to remain flat at 0.03% YoY, a sharp drop from 27.5% last year. Sequential price decreases in staples like wheat, chicken, and vegetables have driven this trend.
- Housing index: Anticipated to decrease by 0.6% MoM due to a 3.9% drop in electricity prices.
Impact of Monetary Policy Adjustments
The State Bank of Pakistan (SBP) has actively supported this declining inflation trend through significant monetary policy adjustments:
- In December 2024, the SBP cut the policy rate by 200 basis points to 13%, marking the fifth consecutive reduction since June 2024, when the rate was 22%.
- Despite these cuts, real interest rates (RIR) remain high at approximately 9%, strengthening the case for continued easing in upcoming Monetary Policy Committee (MPC) meetings.
Future Inflation Outlook
With global oil prices stable and Pakistan’s economic policies fostering price stability, inflation is expected to remain contained. Reports project:
- FY2025 inflation to average below earlier estimates of 11.5%-13.5%.
- Inflation levels to stay low until May 2025, providing a much-needed respite for consumers and businesses alike.
