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 a decrease in electricity by 1.18% and Liquefied Petroleum Gas (LPG) by 0.3%.

§ We have assumed fuel cost adjustment for May 2025 at -Rs0.29/Kwh, lower than the previous month’s 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.

§  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.

Courtesy – Topline Pakistan Research