Inflation Likely Up to 4% in May 2025

Staff Report:

Islamabad: Pakistan’s Consumer Price Index (CPI) for May 2025 is expected to clock in at 3.5-4.0% YoY, taking 11MFY25 average to 4.77% compared to 24.52% in 11MFY24. The MoM inflation in May 2025 is expected to clock in at +0.1%.

As mentioned in our previous month inflation report dated Apr 21, 2025, the inflation numbers bottomed out in Apr 2025.

During May 2025, food inflation is expected to decline by 0.3% MoM, primarily due to a 27% drop in tomato prices and a 16% decline in onion prices. However, this was partially offset by 24% increase in egg prices, a 20% rise in fresh vegetable prices, and an 8.5% rise in chicken prices.

Housing, water, electricity and gas segment is expected to witness approx. a fall of 0.19% MoM in May 2025 due to decrease in electricity by 1.18%, and Liquefied Petroleum Gas (LPG) by 0.3%.reits during inflation

We have assumed fuel cost adjustment for May 2025 at -Rs0.29/Kwh, lower than previous month FCA of -Rs1.36/Kwh. However, this would be offset by a new 3QFY25 Quarterly Tariff Adjustment (QTA) of -Rs1.55/Kwh, effective from May 2025 to Jul 2025 in addition to continuing QTA of 2QFY25, and PDL Diversion subsidy,” Topline said.

 Transport segment is expected to witness a fall of 0.31% MoM due to a 0.8% fall in fuel prices.

For FY25, we maintain our forecast of 4.5-5.5% owing to falling electricity prices, oil prices and food prices.

 Real Rate in May 2025: With inflation expectations of 3.5-4.0% to +0.25% for May 2025, real rates will surge to 700-750bps, significantly higher than Pakistan’s historic average of 200-300bps.

Fitch in its recent rating upgrade note also highlighted Pakistan inflation to average 5% for FY25 before picking up to 8% in FY26. IMF in its detailed report has mentioned average inflation for FY25 at 5.1%

 Key Risks: Any major deviation in commodity prices from current levels may result in change in inflation estimates.