Pakistan Inflation Slows as Economic Outlook Stabilises

Consumer Price Index (CPI) inflation eased to 5.6% year-on-year in December 2025, declining from 6.1% in November, but remaining above the 4.1% level recorded in December 2024. Average inflation for the July–December period of FY2026 stood at 5.2%, significantly lower than 7.2% during the same timeframe last year.

Education costs rose by 9.9%, followed by health at 7.7%, non-perishable food items at 7.5%, housing, water, electricity, gas and fuels at 6.9%, and clothing and footwear at 6.2%, emerging as key drivers of annual inflation. Restaurants and hotels, up 5.6%, along with transport at 4.9%, also contributed to price pressures.

Conversely, perishable food prices witnessed a steep decline of 20.1%, while recreation and culture costs dropped by 4.3%, providing partial relief to consumers.

Short-term price trends indicated moderation, as weekly data showed the Sensitive Price Indicator falling by 0.48% for the week ending January 22, 2026. Out of 51 essential items, prices of 11 declined, 12 increased and 28 remained unchanged.

The Finance Division stated that Pakistan’s economy remains on track to maintain growth momentum in FY2026, backed by stronger large-scale manufacturing activity and other high-frequency economic indicators. The outlook was attributed to cooling inflation, accommodative monetary conditions and continued structural reforms.

On the external front, the current account is expected to stay in deficit, though rising remittances and steady growth in IT and services exports are likely to help absorb external pressures. Enhanced fiscal discipline is also projected to support ongoing macroeconomic stability, the report noted.