ISLAMABAD: Pakistan’s Consumer Price Index (CPI)-based inflation is expected to stay steady in February but is likely to edge up slightly in March, the Finance Division projected in its latest report on Thursday.
According to the “Monthly Economic Update and Outlook” for February 2025, inflation is anticipated to remain within the 2-3% range for February, with a slight increase to 3-4% by March. This rise is attributed to the seasonal increase in food prices during the holy month of Ramadan, which starts on March 2. During this period, higher household spending on food, beverages, and other edibles typically leads to inflationary pressures, which analysts predict will contribute to the anticipated uptick in the inflation rate.
The report further highlighted that inflationary pressures are expected to ease over the course of the year, supported by a favorable monetary policy. This trend is anticipated to foster a more stable financial environment, boosting business confidence and supporting a recovery in Large-Scale Manufacturing (LSM), despite the sector’s slow rebound. The report also noted that export-oriented industries continued to grow, even as LSM saw slower recovery.
The Finance Division’s outlook cited the reduction in inflation as a key factor that allowed the State Bank of Pakistan (SBP) to lower its benchmark interest rate by 100 basis points to 12% in January. This cut was part of the broader monetary easing cycle following a series of aggressive rate cuts over the past six months, aimed at stimulating growth and controlling inflation.
In the past year, the SBP slashed its policy rate from a historic high of 22% in June 2024, one of the most significant rate reductions among emerging markets. These cuts were aimed at managing inflation, which had peaked at a record 38% in May 2023 but has since shown signs of easing. January 2025’s CPI-based inflation stood at 2.4% year-on-year, down from 4.1% in December 2024, according to data from the Pakistan Bureau of Statistics (PBS).
The Finance Division report indicated that inflationary pressures were alleviated by moderate domestic demand and favorable supply-side factors. These conditions, combined with lower interest rates, have provided a more stable financial environment, enabling the SBP to maintain its policy of gradual rate reductions.
The report also pointed to positive developments in remittances and foreign direct investment (FDI), which have bolstered economic sentiment. These factors, along with strong export and import growth, are expected to keep the current account deficit under control in the coming months. Furthermore, the report anticipates that seasonal factors like Ramadan, Eid-ul-Fitr, and Eid-ul-Adha will drive higher remittances, adding further support to the country’s economic outlook.
Looking ahead, the Finance Division forecasted that exports and imports would continue to improve, supported by an expansion in economic activity. This positive trend, coupled with rising remittances, is expected to maintain a stable external environment and support growth in the months to come.
