Pakistan’s economy is poised to experience significant relief from inflation, with the Consumer Price Index (CPI) likely to drop to 3.06% in January 2025, the lowest level in nearly nine years. This sharp decline follows a year-on-year (YoY) inflation of 4.1% in December 2024 and stands in stark contrast to the 29.7% recorded in January 2024. Experts at Arif Habib Limited (AHL) attribute the slowdown to a favourable base effect, PKR stability, and subdued food and energy prices. Speaking to the media, Waqas Ghani Kukaswadia, the Deputy Research Head of JS Global, corroborated the base effect impact, estimating inflation at 3.4% contingent on the coming weeks’ Sensitive Price Index (SPI) numbers. Projections indicate inflation will remain below 5% until April 2025 before rebounding to 8.97% by June as the base effect fades. With a real interest rate nearing 10%, analysts anticipate a 100 -basis-point (bps) cut in the State Bank of Pakistan (SBP)’s policy rate, potentially reducing it to 12% in the forthcoming monetary policy meeting. This move aims to align monetary policy with improving macroeconomic indicators. AHL’s research reports that inflation in Pakistan is showing a significant downward trend, with headline inflation projected to ease to 3.06% in January 2025, marking the lowest level in approximately nine years. This follows a YoY inflation rate of 4.1% in December 2024, which was already at an 80-month low. Inflation is expected to remain below 5% through April 2025, driven by the favourable base effect. However, a reversal is likely in May and June, with inflation projections rising to 8.81% and 8.97%, respectively. This uptick is expected as the base effect dissipates after the first quarter of the calendar year 2025 (1QCY25). Updated assumptions, such as the removal of a 5% General Sales Tax (GST) hike on petroleum products, an increase in the Petroleum Development Levy (PDL) from Rs60 to Rs70 per litre, and revised fuel charge adjustments, have led analysts to forecast average headline inflation at 6.5% for FY25, rising to 9-10% in FY26.