CPI inflation to maintain stable trajectory in Feb, says finance ministry – Business

The finance ministry, in its monthly economic outlook report on Thursday, said that the consumer price index (CPI) inflation would maintain its stable trajectory in February.

“Inflation is anticipated to remain within the range of 2.0-3.0 per cent for
February 2025; however, there are prospects of a slight increase to 3.0-4.0pc by March 2025,” the report said.

Analysts have noted that the current scenario is one of disinflation, which indicates a decrease in the pace of the inflation rate, whereas deflation (the opposite of inflation) occurs when general price levels fall.

The outlook report highlighted that the disinflation trend in the country had “fostered a stable financial environment”, in addition to an interest rate reduction by the State Bank of Pakistan (SBP).

The SBP stepped in and raised interest rates to an all-time high of 22pc in June 2023. Hiking interest rates makes borrowing more expensive and restrains spending and, eventually, inflation since hiking interest rates seemingly curbs demand.

In 2024, however, the SBP finally started tinkering with the interest rate. In June 2024, the SBP finally cut the interest rate by 150 basis points (bps) to 20.5pc — its first rate cut in four years — citing that data showed inflation slowed to a 30-month low of 11.8pc in May 2024. This essentially started SBP’s trajectory to ease interest rates based on its inflation outlook — having it currently reduced to 12pc in January.

Authorities have credited the downward trend to economic stabilisation under a $7 billion International Monetary Fund (IMF) programme secured last summer.

An IMF mission is due to arrive in Islamabad next week for the first review of the global lender’s facility.

“The primary surplus is expected to improve further in the coming months,” the ministry said, pointing to one of the benchmarks identified by the IMF.

The report also said that foreign remittances, a crucial lifeline for the country’s economy, were expected to rise.

“Workers’ remittances recorded robust inflows of $20.8 billion during July- Jan FY2025, marking a 31.7pc increase over $15.8bn last year,” the ministry said.

“Higher growth in remittances and FDI [foreign direct investment] further strengthened sentiments of the economic agents,” the report said, adding that such developments will collectively “indicate positive prospects for economic growth in coming months”.

The report noted that despite slow recovery in the Large-Scale Manufacturing (LSM) sector, export-oriented industries grew.

The big industry production has seen a negative trend since August 2024, except in October, due to domestic and global factors. The LSM grew positively from December 2023 to May 2024 before entering negative territory in June.

On a YoY basis, LSM dipped 2.65pc in August, followed by a decline of 1.92pc in September. However, it recorded a paltry growth of 0.02pc in October before contracting by 3.81pc in November and 3.73pc in December. The LSM expanded 2.38pc in July 2024.

On the agricultural side, the report said that the sector’s productivity was expected to benefit from “government Initiatives and increased investment in Farm Mechanisation”.

“For the Rabi season 2024-25, wheat has been sown on 22.07 million acres, with an expected production of 27.9m tonnes,” it said.