May inflation seen cooling to as low as 1.5% before rebounding in June

• Fitch upgrade testament to macroeconomic stabilisation in FY25.
• Revenue growth outpaced expenditure, reducing fiscal deficit.
• C/A posted $1.9bn surplus, with robust exports, remittances.
  

Ministry of Finance and Revenue expects inflation to ease to between 1.5% and 2% year-on-year (YoY) in May, before picking up to 3%-4% in June, according to a monthly economic report released on Thursday.

Pakistan's average inflation in the fiscal year ending June 2025 is expected to be in the range of 5.5%-7.5%, the central bank said in its half-yearly report last month.

The headline inflation cooled to 0.3% (YoY) in April 2025, down sharply from 17.3% a year earlier and 0.7% in March, driven by broad-based declines across food and energy categories, the Pakistan Bureau of Statistics reported, with analysts saying it was an all-time low.

During July to April (10MFY25), inflation was recorded at 4.73%; contrary to this, during July to April FY24 inflation rate was pegged at 25.97%.

The economy showed strong performance in May, as reflected in key indicators highlighted in the government’s monthly economic update and outlook.

The report said that a recent upgrade by Fitch Ratings is a testament to the macroeconomic stabilisation in the outgoing fiscal year, supported by improved fiscal performance, current account surplus, and easing consumer prices.

According to the report, the revenue growth outpaced expenditure, reducing the fiscal deficit and further strengthening the primary surplus. 

The current account posted a $1.9 billion surplus, with a robust growth in exports and remittances, the report says, adding that a record-low disinflation paved the way for a more accommodative monetary policy stance.

The State Bank of Pakistan (SBP) on May 5 lowered the key interest rate by 100 basis points (bps), bringing it down to 11%, with the change taking effect from May 6, 2025, mainly owing to steady disinflation.

Explaining the move, the Monetary Policy Committee said, “Inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and continued downtrend in food inflation.”

During Jul-Mar FY2025, total revenue grew by 36.7% to Rs 13.36 trillion, compared to Rs9.78 trillion last year, led by a 68% rise in non-tax revenues, which reached Rs4.229 trillion, mainly driven by SBP profits, petroleum levy, dividends, and surcharges.

The Federal Board of Revenue (FBR) tax collection also increased by 26.3% to Rs9.3 trillion during Jul-Apr FY2025, up from Rs7.36 trillion last year.

Meanwhile, the external accounts further improved during July-April FY2025, supported by rising remittances and export growth, despite higher imports. The current account posted a $1.9 billion surplus, reversing a deficit of $1.3 billion last year, as per the monthly economic report.