Macroeconomic Forecast Pakistan

Headline consumer price inflation (CPI) fell markedly in July to 9.6% y-o-y, from 11.3% in June, posing downside risks on our end-FY2012/13 (July-June) forecast of 10.5%. We continue to see a relatively neutral inflationary environment, expecting only mild disinflation, with the headline rate remaining comparatively sticky due to the government’s fiscal profligacy. Crucially, money supply growth remains fairly benign – a clear reflection of the economy’s weak state of affairs. We note that wholesale price inflation (WPI) of 7.2% y-o-y as of July, remains well below that of the current headline consumer price inflation rate, indicating to us continued disinflationary pressure from this front.

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