Moaaz Manzoor

Pakistan’s inflation rate dropped to a decade-low at 1.5% in February, driven by a favourable base effect and falling staple food prices, with experts predicting further easing and a stable economic outlook, reports WealthPK.

Pakistan’s annual inflation rate fell to 1.5% in February, the lowest in nearly a decade and below the finance ministry’s projections, according to the latest data from the Pakistan Bureau of Statistics. This marks a sharp decline from 23.1% in February 2024. Consumer prices also dropped by 0.8% compared to the previous month. Authorities attribute this decline to economic stabilisation under the long-term IMF programme.

In its latest economic outlook, the finance ministry forecasts inflation to stabilise between 2.0-3.0% in February, with a slight rise to 3.0-4.0% by March 2025. Muhammad Saeed Khalid Siddique, Chief Economist & Market Strategist at Adam Securities Limited, emphasised that the sharp decline in inflation is largely attributed to the favourable base effect, which has improved the overall inflation trajectory.

Additionally, lower electricity tariffs and the delayed revision in gas prices have provided further relief in the past seven months of FY25. “Given the current trend, inflation is expected to dip below 2% in the third quarter of FY25, largely due to subsidised electricity prices,” he noted, adding that the base effect will likely help inflation average out at around 6% for the fiscal year.

In his view, this would also pave the way for interest rates to decline further to approximately 10% in FY25, reinforcing economic stability. Waqas Ghani, head of research at JS Global, highlighted that last year’s high inflation created a strong base effect, leading to the current decline. He pointed out that food inflation played a critical role in driving the overall disinflationary trend, with substantial reductions in staple food prices.

However, he cautioned that food inflation could experience a temporary uptick during the fasting month due to seasonal demand pressures. The sharp drop in inflation signals an improving macroeconomic environment, suggesting that stabilisation measures, particularly under the IMF programme, are yielding results.

While the base effect and temporary cost adjustments have contributed to the decline, future inflation trends will depend on global commodity prices, domestic demand recovery, and fiscal discipline. If interest rates continue to ease, the economy could enter a more sustainable phase of growth, reinforcing investor confidence and consumer purchasing power.

Credit: INP-WealthPk