Islamabad, Pakistan’s Consumer Price Index (CPI) for June is forecasted to decrease to 12.5% year-over-year, significantly lower than April’s 17.3% and a sharp decline from 29.4% recorded a year ago. This downward trend reflects the high base effect and reductions in month-over-month figures for April and May, despite a slight anticipated increase in June.
According to JS Global, the softer inflation rate is driven by a third consecutive monthly decrease in food inflation, which is expected to reach a minimal year-over-year rate of 0.5% in June. This trend is supported by a notable 7% month-over-month drop in wheat prices and declines ranging from 5% to 14% in other key food items.
The report notes that while the recent budgetary measures were less stringent than anticipated, their immediate implementation is still likely to cause a significant month-over-month rise in CPI of 500 basis points in July 2024, bringing it to 13.7% year-over-year. This is a lower projection compared to earlier estimates of a 650 basis point increase, which would have taken the CPI to 15.8%.
For the fiscal year 2025, the analysis incorporates a Rs20 per liter increase in Petroleum Oil Lubricants (POL) prices, with the Petroleum Development Levy target adjusted to Rs80 versus an expected Rs100. Additionally, there will be no Sales Tax imposed on POL, contrary to the 18% that had been anticipated. Food and allied prices are expected to rise 4% month-over-month, a reduction from the previously expected 10%. The forecast also includes significant hikes in power and gas tariffs, with power expected to rise by 60% and gas by 20% starting in July.
These adjustments lead to an average CPI forecast of 11% for FY25, positioning real interest rates at 10.5% against the current policy rate of 20.5%.