Pakistan’s headline inflation is projected to drop to 0.5-1% in March 2025, marking the lowest year-on-year (YoY) rate in over three decades, according to Topline Securities. Inflation has steadily declined since hitting a record 38% in May 2023. In February 2025, CPI-based inflation stood at 1.5% YoY, the lowest in over nine years, per the Pakistan Bureau of Statistics (PBS).
Despite Ramadan-related food inflation rising by 2.5% month-on-month (MoM), housing, water, electricity, and gas prices are expected to decline by 0.35% MoM. Electricity costs may drop by 2.3% due to lower fuel cost adjustments. If the pending Quarterly Tariff Adjustment (QTA) of -Rs2/unit is approved on time, it could further reduce electricity prices and inflation.
Topline revised its FY25 inflation forecast to 5-6% from 6-7%, citing falling oil prices and stable non-perishable food costs like wheat. With March inflation expected below 1%, real interest rates could reach 1100-1150bps, significantly above Pakistan’s historic average of 200-300bps. However, FY26 estimates suggest inflation of 8-9%, keeping real rates at 300-400bps positive.
The State Bank of Pakistan (SBP) may cut interest rates by 100bps, based on FY26 inflation forecasts. However, IMF reviews, the FY26 budget, and rising imports may delay any rate cuts until the second half of 2025. The overall economic outlook remains optimistic amid stabilizing inflation trends.