Pakistan’s Inflation Rate for March Likely to Fall Below 1%

Pakistan’s Inflation for March 2025 is projected to fall below 1%, marking the lowest monthly reading in three decades, according to a recent report by Topline Securities. Pakistan’s Consumer Price Index (CPI) for March 2025 is expected to bottom out and clock in at 0.5-1.0% YoY (+0.9% MoM) This will bring the average inflation for the first nine months of FY25 to an estimated 5.38%, a significant decrease from the 27.06% recorded in the same period last year. The report highlights that food inflation is anticipated to rise by approximately 2.5% month-on-month in March 2025, primarily driven by a 43% increase in tomato prices, along with a 25% rise in fruits and a 10% increase in fresh vegetables. Prices of chicken and eggs have also surged by 15% each, while the costs of onions, tea, and pulses have decreased by 7% to 21%. In the housing, water, electricity, and gas sectors, a slight decline of 0.35% month-on-month is expected. Electricity prices are projected to decrease by 2.3% due to a fuel cost adjustment, which is anticipated to further reduce the electricity index by 6.27%. The transport segment is also expected to see a minor decline of 0.7% month-on-month, attributed to a decrease in diesel and petrol prices by an average of 2%. For the fiscal year 2025, the inflation forecast has been revised down to between 5% and 6%, influenced by falling prices and stability in non-perishable food items, particularly wheat. The report indicates that the central bank may adjust its policy rate based on these inflation estimates. Real interest rates in March 2025 are expected to range between 1100-1150 basis points, significantly higher than Pakistan’s historical average of 200-300 basis points. However, for FY26, the estimate is projected to be between 300-400 basis points. Topline Securities believes that the central bank has further room to cut the policy rate by 100bps based on average FY26 inflation estimates, however, given the IMF review, budget FY26, and rising imports, SBP may pause the rate cut cycle till 1H2025. Central Bank also expects inflation for FY25 in the range of 5-7%.