According to a report by Ismail Iqbal Securities, Pakistan’s annual inflation is expected to decrease to 13.1 percent in May 2024, down from 17.3 percent in April 2024.
According to the report, inflation on a month-on-month (MoM) basis is estimated to decrease by 2.1 percent, following a 0.43 percent decrease in April 2024. This decline is mainly attributed to a 5.6 percent drop in food inflation, particularly in the prices of wheat, chicken, fresh fruits, onions, and tomatoes, as well as a 1.8 percent downward adjustment in FCA and a high base effect.
The report also noted that real interest rates are expected to reach 8.9 percent, the highest level in the last 20 years. The previous highest rate was 5.4 percent in April 2015.
The report highlighted that the State Bank of Pakistan (SBP) adopted a cautious tone during the last Monetary Policy Committee (MPC) meeting. They emphasized the importance of evaluating the impact of the budget and the IMF program to gauge their effects on inflation.
The brokerage house expressed its belief that the significant disparity between the policy rate and the Consumer Price Index (CPI) will create space for a rate cut in the upcoming MPC meeting. It noted that the sharp decline in inflation, primarily driven by a reduction in food prices, was unexpected at the start of the year.
