Mar’25 CPI Drops to 59-Year Low: What It Means for the Economy
The Consumer Price Index (CPI) for March 2025 has registered an unprecedented drop, reaching a 59-year low of 0.79% year-on-year (YoY), down from February’s 1.51%. According to data from the State Bank of Pakistan (SBP), this marks the lowest inflation reading since December 1965, when it was recorded at 0.58%. While this decline signals easing inflationary pressures, underlying factors suggest a complex economic landscape ahead.
Monthly Trends and Inflationary Components
Despite the YoY decline, the CPI is expected to rise by 0.98% on a month-on-month (MoM) basis. Meanwhile, core inflation (Non-Food Non-Energy – NFNE) remains elevated at 9.94% for the month, with an average of 10.24% for the first nine months of the fiscal year (9MFY25). This persistence in core inflation indicates that while headline inflation appears to be cooling, underlying inflationary pressures remain a concern.
For 9MFY25, average headline inflation is estimated at 5.39%, a stark contrast to the 27.21% recorded in 9MFY24. This substantial drop can be attributed to a combination of base effects, policy adjustments, and a relative stabilization in key economic variables.
Sectoral Breakdown: What’s Driving Inflation?
Food Inflation: Mixed Signals
The food segment, which accounts for 34.5% of the overall CPI, is expected to rise by 1.7% MoM despite a YoY decline of 5.3%. Key drivers behind this monthly increase include:
- Chicken: +10.16% MoM
- Eggs: +10.25% MoM
- Bananas: +31.18% MoM
- Tomatoes: +25.25% MoM
Conversely, certain food items are expected to see price declines, such as onions (-16.17% MoM), garlic (-7.14% MoM), pulse mash (-4.19% MoM), and pulse gram (-5.91% MoM).
Housing Index: A Minor Relief
The housing index is expected to decrease marginally by 0.2% MoM, primarily due to a 0.3% MoM reduction in electricity costs. This decline is attributed to a negative Fuel Cost Adjustment (FCA) of PKR 2.12/KWh for January 2025, which will be reflected in March’s electricity bills. In comparison, February’s FCA stood at PKR 1.23/KWh, indicating a deeper cost adjustment.
Transport Index: Declining Fuel Costs
The transport index is projected to decline by 1.0% MoM, largely due to lower petrol and diesel prices. On a YoY basis, transport costs are also down by 2.0%, providing some relief to both consumers and businesses relying on logistics and transportation.
Broader Economic Implications
The consecutive low YoY inflation readings suggest that Pakistan’s inflation trajectory is stabilizing. However, several key factors will influence the sustainability of this trend:
- High Base Effect: The sharp drop in YoY inflation is primarily due to a high base from last year, making the decline somewhat expected rather than an indicator of long-term disinflation.
- Global Commodity Prices: If international energy and commodity prices remain stable, Pakistan’s inflation outlook may continue to improve.
- Exchange Rate Stability: A stable Pakistani Rupee (PKR) against major currencies will play a crucial role in keeping import-driven inflation in check.
- Monetary Policy Adjustments: The State Bank of Pakistan’s policy stance, particularly regarding interest rates, will be critical in determining future inflationary trends.
Conclusion
The Mar’25 CPI reading marks a historic low, reflecting a sharp cooling in headline inflation. While this is a positive signal for economic stability, persistent core inflation and sector-specific price increases highlight ongoing structural challenges. Moving forward, inflationary pressures will largely depend on external economic conditions, government policies, and monetary interventions aimed at maintaining price stability.
As the economy navigates these dynamics, stakeholders—including businesses, investors, and policymakers—must closely monitor upcoming inflation readings to gauge the long-term trajectory of price stability in Pakistan.
