Key points
- July inflation forecast above 9 per cent year-on-year
- Base effects drive slowdown, analysts say
- Food prices remain key monthly inflation driver
ISLAMABAD: Pakistan’s headline inflation is expected to return to single digits in July after three consecutive months of double-digit readings.
However, analysts caution that the anticipated slowdown reflects favourable statistical base effects rather than an overall easing of underlying price pressures.
Consumer price inflation (CPI) is forecast to exceed 9 per cent year-on-year in July, down from 11.1 per cent in June, according to estimates released by leading brokerage houses ahead of the official inflation data.
Ismail Iqbal Securities projects Pakistan’s headline inflation at 9.3 per cent year-on-year, describing the expected return to single-digit inflation as “largely base-driven rather than a genuine easing in momentum.”
On a month-on-month basis, the brokerage expects CPI to increase 1.3 per cent, with food prices accounting for most of the rise.
It estimates the food index will climb 4 per cent from June, driven by higher prices of tomatoes, potatoes, onions, fresh vegetables, chicken and eggs. Wheat and wheat flour prices are also expected to rise by about 5.7 per cent over the month.
The increase in food prices is expected to be partly offset by lower transport and housing costs. An early July decline in fuel prices following the Islamabad Memorandum of Understanding between the US and Iran, coupled with the government’s construction-allied industries incentives, enabled this balancing off.
Transport inflation is projected to decline 3.4 per cent month-on-month following a 7.4 per cent fall in motor fuel prices. Meanwhile, Pakistan’s housing index is expected to ease 0.4 per cent due to lower electricity tariffs and liquefied petroleum gas (LPG) charges.
Pakistan’s core inflation to edge up
Despite the moderation in headline inflation, Ismail Iqbal Securities expects non-food, non-energy (NFNE) core inflation—a closely watched measure of underlying price trends—to edge up to 8.5 per cent year-on-year in July from 8.4 per cent in June and 7.6 per cent a year earlier.
“The headline relief is coming from fuel and perishable food, both volatile, while underlying price pressures remain intact,” the brokerage said.
Separately, JS Global forecasts Pakistan’s July headline inflation at 9.1 per cent year-on-year.
The brokerage expects transport inflation to surge 21 per cent from a year earlier, citing the impact of Middle East tensions and volatility in global energy markets.
Food inflation is projected at 9.1 per cent year-on-year, housing inflation at 8.4 per cent with a 0.6 per cent monthly increase, and miscellaneous items at 11.3 per cent.
The official CPI data, due later this week, will be closely watched by investors and policymakers as the State Bank of Pakistan assesses the inflation outlook.
The scope for future monetary policy decisions would depend on the containment of Pakistan’s core inflation.
Although the expected return to single-digit inflation would mark a psychological milestone, analysts say persistent core inflation suggests underlying demand and cost pressures remain elevated. The dichotomy indicates that the path to durable price stability is likely to remain gradual.
