July inflation seen easing to single digits, but core price pressures persist

Pakistan's annual inflation rate is expected to return to single digits in July after three months above the 10% mark, although analysts believe the improvement largely reflects favourable base effects, with underlying inflationary pressures remaining resilient.

Brokerage estimates place headline consumer price inflation (CPI) between 9.1% and 9.3% year-on-year, compared with 11.1% in June. The anticipated decline comes despite continued strength in core inflation and rising prices across several key consumer categories.

According to Ismail Iqbal Securities, headline inflation is likely to ease to 9.3% year-on-year, but the brokerage said the moderation should not be interpreted as a broad-based improvement in inflation dynamics, describing it instead as being largely driven by statistical base effects.

On a monthly basis, consumer prices are forecast to increase 1.3%, led almost entirely by food inflation. The brokerage expects the food index to rise 4% month-on-month, reflecting higher prices for tomatoes, potatoes, onions, fresh vegetables, chicken and eggs. Wheat and wheat flour are also projected to record monthly increases of around 5.7%.

The increase in food prices is expected to be partly offset by lower energy-related costs. Transport prices are forecast to decline 3.4% month-on-month following a 7.4% drop in motor fuel prices, while the housing index is projected to fall 0.4% as electricity tariffs and LPG charges ease.

Despite the expected slowdown in headline inflation, non-food, non-energy (NFNE) core inflation is forecast to edge up to 8.5% year-on-year in July from 8.4% in June and 7.6% a year earlier. According to Ismail Iqbal Securities, this indicates that the expected relief in headline inflation is being driven primarily by volatile components such as fuel and perishable food, while broader price pressures remain largely unchanged.

In a separate forecast, JS Global expects July headline inflation at 9.1% year-on-year. The brokerage projects transport inflation to surge 21% year-on-year, citing geopolitical tensions in the Middle East and volatility in international energy markets.

JS Global also forecasts food inflation at 9.1% year-on-year, housing inflation at 8.4% year-on-year with 0.6% month-on-month growth, and miscellaneous inflation at 11.3% year-on-year.

The forecasts suggest Pakistan's headline inflation is likely to fall below 10% for the first time since April, but economists continue to caution that the easing is being driven more by statistical comparisons than by a meaningful reduction in underlying inflationary momentum.