Pakistan’s Headline Inflation Declines to 6.9% in September 2024, Rate Cuts Expected Before Year-End

Pakistan’s headline inflation rate has dropped to 6.9% year-over-year (YOY) in September 2024, marking the lowest level since January 2021. Core inflation in urban areas has also decreased, reaching 9.3% YOY, indicating a further easing of underlying economic pressures. Year-to-date, the consumer price index (CPI) growth stands at 15.7%, while core inflation in urban regions is at 12.8%.

Key Insights on Inflation Outlook:

Continued Downward Trend: Analysts anticipate that inflation will likely continue to decline in the coming months, largely due to favorable base effects. However, on a cumulative basis, inflation is expected to remain in double digits, with S&P Global Market Intelligence forecasting an average inflation rate of 13.2% for the entirety of 2024.

Potential for Policy Rate Cuts: The latest inflation figures provide the State Bank of Pakistan (SBP) with additional leeway to reduce the policy rate further. Since June, the SBP has already lowered rates by 450 basis points. Expectations indicate a possible reduction of an additional 200 basis points by the end of 2024, likely occurring during the Monetary Policy Committee (MPC) meetings in November and December.

Risks to the Outlook:

Despite the positive inflation trends, risks remain, particularly concerning budgetary measures. These include anticipated higher taxes impacting the agriculture, wholesale, and retail sectors, as well as expected increases in electricity and gas tariffs under the new IMF Extended Fund Facility (EFF) program. Such factors could exert upward pressure on inflation, complicating the economic landscape.

The analysis was produced by S&P Global Market Intelligence, not S&P Global Ratings, which is a separately managed division of S&P Global. Please attribute any commentary/data you cite from this analysis to S&P Global Market Intelligence