Pakistan’s inflation outlook: Small rise in March, long-term decrease predicted

(Web Desk): Pakistan's inflation is expected to rise slightly in March after staying stable in February, but it will continue to decrease throughout the year, according to the Finance Division's latest report.

The report, titled "Monthly Economic Update and Outlook," projects inflation will remain between 2-3% for February, but it could increase to 3-4% in March.

Despite this small increase, the report suggests that inflationary pressures will ease significantly, supported by a strong monetary policy. This is expected to boost business confidence and help the recovery of Large-Scale Manufacturing (LSM). While LSM is recovering slowly, export-oriented industries have shown growth.

A sharp drop in inflation has helped stabilize the financial environment, allowing the central bank to reduce the policy rate. The report highlights that the economy showed positive developments during the first seven months of the 2024-2025 fiscal year, with key economic indicators improving.

In January 2025, Pakistan's Consumer Price Index (CPI) inflation stood at 2.4%, down from 4.1% in December 2024, according to the Pakistan Bureau of Statistics. The State Bank of Pakistan had earlier lowered its benchmark interest rate by 1% to 12%, following a series of interest rate cuts over the past six months. The rate was reduced from a peak of 22% in June 2023, one of the most aggressive rate cuts among emerging markets.

The report noted that the decision to cut rates was based on inflation trends that were in line with expectations, as well as moderate domestic demand and favorable supply conditions. Inflation had peaked at a record high of 38% in May 2023, but since then, it has been on a downward trajectory.

Additionally, the outlook mentioned that higher remittances and foreign direct investment (FDI) have strengthened economic sentiment, suggesting a positive economic outlook for the coming months.