Jadwa Investments has revised down its 2018 inflation rate to average around 3.1 percent, given the new CPI basket and base year adjustments, it said in a new report.
The three main external challenges that may have an impact on inflation rates include higher oil prices, higher international food prices, and monetary tightening by the US Fed, it added.
In December, Jadwa had forecast inflation to top over 5 percent, following the implementation of the value-added tax (VAT) and energy price reforms.
Inflation rate rose by 3 percent year-on-year, and 3.9 percent month-on-month in January, as a result of the implementation of the VAT and reforms on utility and fuel prices. However, the revised inflation rates show that prices were declining in 2017, and January showed the first increase in 13 months.
Segments with highest price increases were transport, tobacco, recreation and culture and food and beverages, while clothing and footwear declined month-on-month, despite VAT implementation on the segment in comparison to prices in December.
"Looking ahead, we expect sales to marginally decline after the spike in December, driven by an anticipated weaker demand, especially on goods and services with an elastic demand," Jadwa added in the report.
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