June Inflation May Hit Two-Year High

Pakistan’s inflation rate is projected to climb to its highest monthly level in nearly two years during June 2026, primarily due to a surge in food prices associated with Eid-related demand, despite easing costs in fuel and utility sectors.

According to market estimates, the Consumer Price Index (CPI) is expected to record year-on-year growth ranging between 11.75% and 12.25% in June 2026, exceeding the 11.66% recorded in May and representing a substantial increase from the 3.23% inflation rate observed in June 2025. If these projections materialize, June would mark the third successive month of double-digit inflation and the highest monthly inflation reading in the past 24 months.

The anticipated increase is expected to push average inflation for Fiscal Year 2025-26 to approximately 7.1%, compared with 4.5% in the preceding fiscal year, reflecting a renewed rise in price pressures after a period of relative stability.

On a month-on-month basis, inflation is projected to increase by approximately 0.46%, with food prices serving as the primary contributor. Food inflation is estimated to rise by 1.22% during June as seasonal demand linked to Eid celebrations places upward pressure on essential commodities. Among the most significant increases, tomato prices are expected to rise by 59%, onions by 30%, and potatoes by 20% during the month.

Despite rising food costs, several sectors are anticipated to provide partial relief to consumers. Transport-related inflation is projected to decline by 2.47% month-on-month following a reduction in international oil prices, resulting in lower domestic fuel costs. Petrol prices are estimated to have decreased by approximately 5.5%, while high-speed diesel prices have fallen by around 4.7%.

Similarly, the housing, water, electricity, and gas category is expected to register a monthly decline of 0.5%, supported by reductions in LPG prices and lower electricity charges resulting from recent tariff adjustments.

The inflation outlook is also likely to influence monetary policy considerations. With inflation expected to exceed prevailing policy interest rates during June, economic analysts estimate that Pakistan’s real interest rate could move into negative territory by approximately 25 to 75 basis points, falling below the country's long-term historical range of 200 to 300 basis points.

Looking beyond the current fiscal year, analysts expect inflationary pressures to moderate gradually. Average inflation for Fiscal Year 2026-27 is projected to remain within the range of 8% to 8.5%, while year-on-year inflation for June 2027 is forecast to decline to approximately 7%, indicating a potential return to a more stable inflation environment.