Pakistan’s headline inflation for May 2024 is expected to drop significantly around 13.9% year-on-year. This decline may push real interest rates to over 8%.
According to a report published by Mettis Global, the expected decrease is largely due to a sharp drop in monthly prices and a favorable base effect from the previous year.
Analysts have observed a 1.4% decrease in monthly inflation, marking the second consecutive month of decline and a figure notably lower than the last 12-month average of 1.35% month-on-month.
As per the report, this trend is anticipated to reduce the average annual inflation for the first 11 months of FY24 to 25.1% year-on-year, a decrease from 29% in the corresponding period of FY23.
Key contributors to the reduction in monthly inflation include a 440 basis point decrease in the Food index. Significant price drops in commodities such as onions, tomatoes, chicken, and wheat have decreased this index. The Transport index is also expected to decline, reflecting lower fuel prices.
The report suggested varying scenarios for annual inflation rates by the end of December 2024, based on different monthly consumer price increases:
- With a consistent monthly increase of 0.5%, annual inflation could drop to around 7.4%.
- A monthly increase of 1% could see annual inflation decrease to approximately 11.7%.
- Should monthly inflation continue at the last 12-month average of 1.35%, annual inflation is projected to be about 14.8%.
