Pakistan Inflation Slows to 5.6% in December as Food Prices Moderate
Pakistan's consumer price index rose 5.6% year-on-year in December 2024, below the 5.8% forecast and down from November's 6.1%, driven by moderating food price growth of 3.24% compared to 5.53% previously. The data validates the State Bank of Pakistan's December 15 decision to cut rates by 50 basis points to a three-year low. Analysts project inflation averaging 6.3% in FY26 and 4% in FY27, supported by improved food supplies and lower oil prices, though fiscal and climate risks remain.
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Pakistan's inflation rate decelerated more than anticipated in December 2024, providing validation for the central bank's recent monetary policy easing as the country seeks to balance price stability with economic growth requirements.
Inflation Data Shows Broad-Based Moderation
The consumer price index rose 5.6% in December from a year earlier, according to data released by the Pakistan Bureau of Statistics on Thursday. This reading came in below the 5.8% median estimate in a Bloomberg survey and marked a decline from November's 6.1% rate.
| Metric | December 2024 | November 2024 | Analyst Estimate |
|---|---|---|---|
| Consumer Price Index (YoY) | 5.6% | 6.1% | 5.8% |
| Food Costs (YoY) | 3.24% | 5.53% | - |
| Housing & Energy (YoY) | 6.86% | 5.34% | - |
The deceleration was primarily driven by moderating food price pressures, which rose 3.24% year-on-year in December compared to 5.53% in November. However, housing and energy costs showed an acceleration, climbing 6.86% in December versus 5.34% in the previous month.
Central Bank Policy Vindicated
The State Bank of Pakistan cut its policy rate by 50 basis points on December 15 to the lowest level in almost three years, citing stable price pressures and the need to stimulate growth. This decision came after the central bank held rates steady for four consecutive policy meetings. The finance ministry had forecast inflation of 5.5%-6.5% for December, with the actual reading falling within this range.
Economic Outlook and Risk Factors
Muhammad Awais Ashraf, director at AKD Securities Research, provided forward-looking projections for Pakistan's inflation trajectory. "We expect inflation to average 6.3% in FY26 and 4% in FY27, based on our assumptions of improved food supplies, subdued international oil prices, and lower periodic energy price adjustments," Ashraf stated.
However, several risk factors could impact these projections:
- Fiscal slippages affecting government spending discipline
- Global energy supply shocks disrupting commodity markets
- Climate-change effects impacting agricultural production
Trade and Security Challenges
Despite tensions with Afghanistan leading to border restrictions that disrupted trade flows, food supplies were largely maintained through alternative sources, helping contain broader inflationary pressures. The border situation reflects ongoing security challenges, as Pakistan had initially supported the Taliban takeover expecting cooperation in controlling Tehreek-e-Taliban Pakistan militants, but the group has since intensified its insurgency across Pakistan's tribal regions.
The December inflation data suggests Pakistan's monetary authorities have successfully navigated the delicate balance between controlling price pressures and supporting economic growth, though external risks continue to pose challenges for the country's economic stability.
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