By Staff Reporter
KARACHI: The inflation is set to bottom out in April 2025, potentially dipping into deflationary territory, as a sharp decline in food and electricity prices drives the Consumer Price Index (CPI) to unprecedented lows, a brokerage report said in Monday.
The brokerage Topline Securities projects the CPI to fall below 0.50% year-on-year (YoY) in April, estimating a range of 0.05% to 0.5%, with a month-on-month (MoM) decrease of 0.8%.
Should this hold, the average inflation for the first 10 months of fiscal year 2025 (10MFY25) would settle at 4.87%, a steep drop from the 26.22% recorded in FY24’s equivalent period.
A steep fall in food and electricity prices fuels the slowdown. “The inflation is expected to be lower due to a significant fall in food and electricity prices,” the brokerage noted in its report.
Food inflation is expected to shed 3.32% MoM in April, propelled by substantial price reductions in key items. Fresh fruit prices are expected to plummet by 25%, tomatoes and onions by 21%, and eggs by 19%. In contrast, prices for staples such as milk, meat, spices, and pulses are projected to rise by a modest 0.2% on average.
The housing, water, electricity, and gas segment is anticipated to see a slight MoM decline of 0.02%, primarily driven by a 6.8% reduction in electricity prices and a 0.5% drop in solid fuel (wood) costs. However, this downward pressure is partially offset by a 1.8% increase in rent.
Topline’s estimates incorporate specific electricity tariff adjustments, including a fuel cost adjustment of Rs1.36 per kilowatt-hour (Kwh), a quarterly tariff adjustment (QTA) of Rs1.9, and a petroleum development levy (PDL) incentive of Rs1.71.
The transport sector is also contributing to the disinflationary trend, with an expected MoM fall of 0.12%, attributed to a 0.4% decrease in fuel prices.
The brokerage derived its inflation estimates by averaging Sensitive Price Index (SPI) data for the weeks ending April 10 and 17, 2025, aligning with a typical cutoff period of April 11-14. However, using only the SPI reading from April 17, the CPI turns negative, falling within a range of -0.25% to 0.25% YoY, signaling a potential deflationary trend.
For the entirety of FY25, Topline has revised its inflation forecast downward to 4.5-5.5%, from a previous range of 5-6%, citing sustained declines in electricity, oil, and food prices. The projection aligns with Fitch Ratings’ recent outlook, which accompanied its rating upgrade for Pakistan. Fitch anticipates inflation to average 5% in FY25, before climbing to 8% in FY26.
Monetary Policy Implications
With April 2025 inflation potentially ranging from -0.25% to +0.25%, real interest rates could surge to approximately 1200 basis points (bps), far exceeding the country’s historical average of 200-300 bps. This significant gap could prompt a reassessment of monetary policy settings by the State Bank of Pakistan.
The brokerage, however, cautioned that its inflation estimates hinge on current commodity price levels, notably oil at $75 per barrel. Any major deviations from this benchmark could alter the inflation trajectory, introducing uncertainty into the forecast.
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