Pakistan’s inflation continues to decline sharply, with the Consumer Price Index (CPI) expected to hit a historic low of just 0.3 percent year-on-year in April 2025, down from 0.7 percent in March. This would mark the lowest inflation level in nearly six decades, driven by a combination of falling food prices and a favorable base effect from last year’s high inflation.
According to JS Global, the drop is primarily due to a significant decline in food inflation. With food accounting for 35 percent of the CPI basket, prices for key staples like rice, potatoes, tomatoes, wheat, and onions have fallen sharply. As a result, food inflation is projected to decline by 5.7 percent year-on-year in April 2025, compared to 9.7 percent a year ago.
The average inflation for the first ten months of FY2024–25 (10MFY25) is now expected to stand at 4.9 percent, a substantial drop from the 26.2 percent recorded during the same period last fiscal year.
However, core inflation — which excludes food and energy — remains relatively firm, projected to increase 7.7 percent year-on-year in April 2025, with a month-on-month rise of 40 basis points. Core inflation has been hovering around 10 percent, especially in urban regions.
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Monetary Policy Outlook: Rate Cuts on the Horizon?
The sustained disinflation trend is fueling expectations of further interest rate cuts. While the State Bank of Pakistan (SBP) kept its policy rate steady at 12 percent during its last Monetary Policy Committee (MPC) meeting, it has already slashed rates by 1,000 basis points since June 2024 — down from a peak of 22 percent.
The average CPI for the full FY2024–25 is now projected at 5.0 percent, assuming stable oil prices and a steady PKR/USD exchange rate. Although the recent hike in the petroleum development levy (PDL) is accounted for, any second-round inflationary effects remain a concern.
The SBP’s next MPC meetings are scheduled for 5th May 2025 and 16th June 2025, where markets are keenly awaiting signals of a renewed easing cycle amid record-low inflation.
