Pakistan's Inflation Trends: A Mixed Picture for Consumers

Pakistan's consumer price inflation showed a notable slowdown, registering at 5.6% year-on-year in December 2025, down from 6.1% in November. This decline follows a surprising decision by the State Bank of Pakistan (SBP) to cut its key policy rate by 50 basis points to 10.5%, breaking a four-meeting hold. Analysts had anticipated that rates would remain unchanged. The decrease in inflation is attributed to lower prices of perishable food items, particularly vegetables, which saw a month-on-month decline of 1.7% in December. The Pakistan Bureau of Statistics (PBS) indicated that while inflation fell within the SBP's target range of 5-7% during the July-November period, core inflation remains a concern due to persistent price pressures.

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Despite the overall decline in inflation, the prices of several essential commodities have continued to rise. For instance, the price of wheat flour increased significantly, with a 20kg bag now costing between Rs1,810 and Rs2,650, up from Rs1,580 to Rs2,200 a year earlier. Additionally, the prices of meat and dairy products have also surged, with beef prices rising to Rs900-1,450 per kg and fresh milk prices increasing to Rs170-260 per litre. Conversely, consumers have benefited from a substantial drop in vegetable prices, particularly tomatoes, which fell to as low as Rs30 per kg in various cities, although this has adversely affected growers.

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Traders and business leaders have expressed dissatisfaction with the official inflation figures, arguing that they do not reflect the reality of rising costs in many sectors. Atiq Mir, Chairman of the All Karachi Tajir Itehad, described 2025 as a "highly disappointing year," citing a 60% decline in trading and business activities, alongside rising food prices and unemployment. He criticized the government's lack of action in creating a business-friendly environment, pointing to increasing costs of utilities and taxes as contributing factors to the economic downturn.

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The SBP has maintained that while inflation has moderated, it remains vigilant about core inflation pressures. The International Monetary Fund (IMF) has cautioned against premature monetary easing under the ongoing $7 billion loan program, emphasizing the need for careful management of inflationary expectations.

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While the PBS reported a year-on-year increase of 2.41% in the Sensitive Price Indicator (SPI), reflecting persistent cost pressures, some analysts noted that the benefits of recent price declines are often seasonal and unevenly distributed among income groups. The lowest income quintile experienced a 1.24% year-on-year increase in costs, while middle-income groups faced increases of around 2.5%, indicating that inflationary pressures remain entrenched.

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Looking ahead, the economic outlook for 2026 appears challenging, with concerns over inflation, unemployment, and business confidence persisting. The government’s response to these issues will be critical in shaping the economic landscape in the coming year.

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