Macroeconomic Forecast Pakistan

Posing upside risk on our end-FY2011/12 (July-June) consumer price inflation (CPI) forecast of 9.0%, the headline rate ticked up to 11.3% y-o-y in April, up from 10.8% in the previous month. Meanwhile, core inflation remained unchanged at 10.8%. Despite the stubbornness of late, we continue to believe that consumer price disinflation will continue on the back of falling money supply growth. The key risk, from our perspective, is the potential for fiscal slippage leading to higher government borrowing. At the moment, we are projecting average consumer price inflation to fall to 8.5% in FY2012/13, from a projected 11.2% this fiscal year.

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