According to S&P Global Market Intelligence, Pakistan’s headline inflation rate decreased to 11.8% in May, marking the fifth consecutive month of decline. This notable reduction, driven primarily by a deflation in food prices, especially perishables, was significantly lower than market expectations.
Key Highlights from the Analysis:
- The consumer price index (CPI) inflation for May 2024 stood at 11.8%, down from previous months, defying market predictions.
- The drop in inflation was largely attributed to a considerable deflation in food prices.
- S&P Global Market Intelligence forecasts that inflation will continue to decline in the coming months due to favorable base effects, but it will likely remain in the double-digit range.
- For 2024, an average monthly year-over-year inflation rate of 13.7% is projected.
Despite the recent decline in headline inflation, the State Bank of Pakistan (SBP) maintained its policy rate at 22% during its April 29 meeting. This decision was influenced by high inflation, global financial market uncertainties, and the upcoming budget announcement in June.
However, with the recent softening in inflation, there is an increased likelihood that the SBP will lower its policy rate in June 2024. S&P Global Market Intelligence projects a cumulative 450 basis point reduction in the policy rate by the end of 2024.
