Inflation in Pakistan expected to decline in June 2024
Headline inflation is expected to decrease
Inflation in Pakistan is expected to decrease in June 2024. The headline inflation rate is predicted to be 11.4% year-on-year (YoY), compared to 11.8% in the previous month. This decline is mainly attributed to a high base effect and a drop in the food and transport indices. On a month-over-month (MoM) basis, the Consumer Price Index (CPI) is likely to drop by 0.6%.
The food index shows a significant decrease
The food index is anticipated to decline by 0.8% YoY and 1.7% MoM in June 2024. The main factors for this decrease include lower prices of essential items such as wheat, wheat flour, rice, chicken, and fresh vegetables. Improved supply chains, reduced transport costs, and stable international commodity prices have contributed to this decline.
Transport index trends
While the transport index is expected to grow by 9.8% YoY, it is projected to decline by 2.7% MoM in June 2024. This reduction is due to a 5% drop in fuel prices, driven by lower international oil prices.
Housing index increases
The housing index is expected to increase by 33.6% YoY and 0.2% MoM. The primary reason for this growth is a 5.8% MoM increase in electricity charges.
Other indexes on the rise
The clothing, health, and education indexes are also expected to rise both yearly and monthly due to higher input costs.
| Category | Weight (%) | Index (June 2024) | Index (May 2024) | MoM Change (%) | YoY Change (%) |
|---|---|---|---|---|---|
| General | 100% | 253.3 | 254.8 | -0.6% | 11.4% |
| Food | 35% | 259.6 | 264.0 | -1.7% | -0.8% |
| Beverages, Tobacco | 1% | 379.4 | 366.7 | 3.5% | 6.3% |
| Clothing and Footwear | 9% | 240.3 | 239.5 | 0.3% | 17.1% |
| Housing | 24% | 237.2 | 236.6 | 0.2% | 33.6% |
| Household Equipment | 4% | 268.5 | 267.4 | 0.4% | 12.4% |
| Health | 3% | 242.4 | 241.2 | 0.5% | 18.8% |
| Transport | 6% | 306.7 | 315.1 | -2.7% | 9.8% |
| Communication | 2% | 133.8 | 134.3 | -0.3% | 13.1% |
| Recreation and Culture | 2% | 264.5 | 262.3 | 0.9% | 8.2% |
| Education | 4% | 203.4 | 199.0 | 2.2% | 18.1% |
| Restaurants and Hotels | 7% | 266.1 | 267.2 | -0.4% | 11.7% |
| Miscellaneous | 5% | 283.3 | 282.8 | 0.2% | 13.7% |
Policy rate update
The State Bank of Pakistan (SBP) recently cut the policy rate by 150 basis points (bps) to 20.5%. This decision was made in response to easing inflationary pressures. Despite this reduction, the policy rate remains tight, aligning with the International Monetary Fund’s (IMF) guidance on Pakistan’s policy rate stance.
Future inflation outlook
Revenue measures in the budget for FY25 are expected to have an inflationary impact, with average inflation likely to hover around 13-14% during FY25. However, real interest rates are anticipated to be in the range of 6.5-7.5%, providing the SBP with more room to initiate further cuts during CY24.
Market Summary
As of the latest update, the KSE 100 Index stands at 78,802 points. The market capitalization is Rs 8,552 billion (USD 30.7 billion), with a trading volume of 212 million shares.
Disclaimer:
The information in this article is based on research by Sherman Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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