- Headline inflation reading beats market, official consensus.
- High base, effect, easing commodities, stable exchange rate.
- Policy rate seen coming down further as disinflation persists.
Pakistan’s Consumer Price Index (CPI)-based inflation dropped to 6.9% year-on-year in September 2024, the lowest since January 2021, down from 9.6% in August, driven by the high base effect, easing commodity and energy markets, and a stable currency, according to the Pakistan Bureau of Statistics (PBS).
The country’s annual consumer price inflation rate slowed to 9.6% in August, the first single-digit reading in almost three years, which analysts have widely pinned on the fact that the currency has remained stable over the past 12 months.
The inflation numbers have beaten the market and official consensus by a significant margin as the finance ministry earlier this month projected the inflation to decelerate to around 8-9% in the next two months (September-October), in the monthly economic outlook released on Friday.
“Inflation is expected to remain within the range of 8% to 9% in September and October 2024,” the Ministry of Finance said in its ‘Monthly Economic Update and Outlook’.
This drop makes the case for a further easing of monetary policy by the central bank even stronger. State Bank of Pakistan cut its key policy rate by 200 basis points to 17.5% on Thursday, it said in a statement, making it the third straight reduction since June as the country looks to spur growth as inflation eases.
According to analysts as disinflation is anticipated to lose more steam down the line, mainly on the back of high base effect and dropping global commodities, the SBP will have room to keep lowering the policy rate.
Pakistan struck a deal last month with the International Monetary Fund for a $7 billion loan programme that includes tough measures such as higher taxes on farm incomes and electricity prices.
The prospect of such moves has worried poor and middle-class Pakistanis. But inflation has started moving on a downward trend, albeit from a high base.
Economic indicators have stabilised in the South Asian nation since last summer when the country came close to a default before a last-gasp bailout from the International Monetary Fund.
