Continued Decline Recorded in Overall Inflation Rate

Continued Decline Recorded in Overall Inflation Rate
(Asghar Ali Mubarak) In Pakistan, the annual inflation rate dropped to 9.6 percent in October 2026, following recorded rates of 10.3 percent in September and 11.1 percent in August. This marks the third consecutive month in which a clear decline has been observed in the country’s inflation trend. Despite the ongoing crisis in the Middle East and global economic pressures, Pakistan has recorded a consistent drop in its inflation rate. According to data from the Pakistan Bureau of Statistics (PBS), the decline in domestic inflation—from 11.1 percent to 9.6 percent—is significant, especially given the intense geopolitical and economic pressures present globally.
The inflation rate stood at 11.1 percent in August, 10.3 percent in September, and decreased to 9.6 percent in October. This reduction in inflation is notable given the ongoing conflict in the Middle East—a situation that has exerted upward pressure on prices worldwide, including in Western nations, where protests have erupted in cities ranging from France to Berlin and Italy. In response to these global inflationary pressures, various countries have begun providing relief to their citizens through measures such as reducing taxes on petroleum products or offering direct subsidies at fuel stations. The Government of Pakistan also initiated a similar measure; however, the subsidy—announced shortly after the US and Israeli strikes on Iran on February 28—was subsequently suspended due to concerns raised by the IMF. The Fund argued that, as the subsidy had not been allocated within the budget, it could potentially undermine the economic reform process established by the government. In a statement issued on October 7, following the conclusion of the fourth review of the ongoing program, the IMF warned that the fuel relief scheme should be phased out immediately, citing its high cost and broad scope. Should oil prices in the global market rise more than expected in the future, any fuel-related subsidies must be limited in duration and targeted specifically at the needy segments of society. Existing social support programs should be utilized for this purpose, and the associated costs must remain within the budgetary allocations for the 2027 fiscal year. The credibility of Pakistan’s statistical data is questionable. In a document released in October 2024—pertaining to the 2024 Article IV consultation and a request for an Extended Fund Facility (EFF)—the IMF noted that significant gaps persist in the primary data for sectors accounting for approximately one-third of the GDP. Furthermore, issues exist regarding the detail and reliability of Government Finance Statistics (GFS). The Fund indicated that it would provide technical assistance for the compilation of GFS and the Producer Price Index (PPI). Additionally, the Pakistan Bureau of Statistics (PBS) is set to soon begin fieldwork for four major surveys, which will inform the upcoming rebasing of national accounts (using the 2026 fiscal year as the base year). While this technical assistance process was originally scheduled for completion by the end of June 2026, PBS staff informed Business Recorder that the Fund requested further improvements and adjustments; consequently, the deadline for completion was extended to the end of October this year. However, despite repeated inquiries to the PBS regarding whether the technical assistance process has been completed and reviewed by the Fund, no response has been received. Core inflation, which excludes food and energy prices… [Excluding certain items,] the rate declined from 8.6 percent to 7.8 percent—a reduction of 0.8 percentage points. In previous months, a similar decline in core inflation had been cited as justification for lowering the policy rate. However, on October 26, the Monetary Policy Committee (MPC) raised the policy rate by 50 basis points. The Committee justified this hike by stating that “core inflation has stabilized at a high level of approximately 8.4 percent.” Critics argue that, in light of the latest core inflation data, this assessment by the Committee was inaccurate. To them, this serves as further evidence that the MPC is determining the policy rate based on flawed projections—and, almost certainly, on the recommendations of the IMF. The inflation rate this year has been significantly higher than last year, rising from 4.79 percent to 10.05 percent; undoubtedly, a major factor behind this increase is the conflict in the Middle East. The most substantial rise was recorded in the Wholesale Price Index (WPI), which stood at 0.05 percent in the 2025-26 fiscal year but has climbed to 12.10 percent this year. Statisticians note that the extraordinary surge in wholesale prices has had a clear, adverse impact on the poor and vulnerable segments of society—a trend reflected in the Sensitive Price Index (SPI).The decline in Pakistan’s annual inflation rate to 9.6 percent is undoubtedly a significant achievement; however, the country continues to face numerous internal and external economic challenges on its path toward long-term, sustainable development. In light of recent reports from economic experts, the Asian Development Bank (ADB), and the International Monetary Fund (IMF), the potential future challenges are as follows:
The heavy burden of repaying and refinancing external debt poses the most significant strategic threat to the country’s fiscal flexibility. Interest payments consume a substantial portion of federal revenue—approximately 39.1 percent—thereby severely limiting the fiscal space available for development projects and social welfare initiatives.
The circular debt within the energy sector and the continuous adjustments to electricity tariffs present major challenges to macroeconomic stability. Under the IMF program, the elimination of subsidies and the increase in tariffs are driving up industrial production costs, a trend that could potentially fuel a resurgence in non-food inflation in the coming months. Protracted conflicts in the Middle East and the geopolitical situation in the Red Sea could trigger external supply shocks. This poses a persistent risk of sudden spikes in global crude oil prices, rising maritime freight costs, and adverse impacts on remittance channels. Furthermore, the stringent conditions set by the IMF—including the requirement to maintain a 2% primary surplus under the Extended Fund Facility (EFF)—will pose a significant challenge for the national economic team. Achieving this target will necessitate reforms to the tax net, cuts to subsidies, and a freeze on capital expenditures—measures that could potentially dampen the pace of short-term economic growth.
Climate change and the agricultural sector represent latent risks to the sustainability of the country’s supply chain. Since the recent economic recovery relies heavily on strong crop yields, any unforeseen climate-related shocks—such as floods or droughts—could disrupt the availability of food commodities and drive inflation upward once again. In light of recent positive indicators from the Pakistan Bureau of Statistics (PBS) and the Ministry of Finance’s outlook report, the following is a comprehensive overview of government proposals and alternative strategic measures aimed at sustaining economic stability and addressing future challenges:
To tackle domestic economic challenges—specifically circular debt and the heavy burden of external debt—the government team is focusing on extensive reforms to the tax net. This involves bringing the retail, wholesale, and agricultural sectors into the documented economy to boost revenue, thereby ensuring that the development budget does not have to be slashed to cover interest payments. As an alternative, experts suggest that instead of relying solely on traditional taxation, the government should immediately remove bureaucratic hurdles to accelerate the privatization of State-Owned Enterprises (SOEs) and streamline processes to attract Foreign Direct Investment (FDI), ultimately ending the long-term reliance on debt. To address the crisis in the energy sector and the challenge of high electricity tariffs, proposals include launching a rigorous campaign against electricity theft and restructuring the management of power distribution companies (DISCOs). However, a sustainable solution lies in transitioning the country away from thermal power plants—which rely on imported fuel—toward local coal, hydropower, and solar energy. Furthermore, agreements with Independent Power Producers (IPPs) must be comprehensively renegotiated to ensure that the burden of ‘capacity charges’ does not fall upon ordinary consumers and industries; this would reduce industrial production costs and, in turn, boost exports.
To shield the domestic market from potential volatility in petroleum prices—driven by conflicts and geopolitical crises in the Middle East—it is essential to establish strategic reserves, ensuring that supply remains uninterrupted even if global prices surge suddenly. Simultaneously, to meet the targets for fiscal discipline and a two percent primary surplus (as mandated by IMF conditions), non-developmental and luxury expenditures must be strictly curtailed. Additionally, by adopting an alternative economic model—focusing on barter trade with regional neighbors and operationalizing cross-border trade corridors—the country can reduce its reliance on the US dollar and lower external logistics costs.
To address the risks posed by climate change and threats to the agricultural supply chain, the government’s economic team is developing programs for crop insurance and ‘smart’ subsidies for farmers, aimed at keeping food inflation under control. As an alternative and more effective solution, the adoption of modern technology, corporate farming, and the use of seeds capable of withstanding environmental changes in the agricultural sector is essential. This is because, until food security is established on a sustainable basis at the local level, shocks from the global market could, at any time, once again adversely affect the country’s inflation trajectory.The stability of the domestic supply chain and improvements in local production—coupled with a decline in local inflation—stand out, especially at a time when global logistics, maritime freight (such as the Red Sea crisis), and energy prices are under significant pressure due to conflicts in the Middle East. A robust supply of agricultural and food commodities—specifically essential items like tomatoes, onions, potatoes, and sugar—has ensured market availability, effectively insulating the domestic economy from the full impact of global inflationary trends. Measures taken by the central bank and relevant institutions have helped maintain a balance between market supply and demand, contributing to a downward trend in prices. While developed European nations—such as France, Germany, and Italy—are grappling with public protests and severe economic strain driven by inflation, energy crises, and geopolitical tensions, the decline in domestic inflation for the third consecutive month demonstrates that recent economic reforms and fiscal discipline are enhancing the economy’s resilience against external shocks. Despite fluctuations in the prices of oil and other commodities in the global market, domestic trade and fiscal interventions have played a pivotal role in keeping prices stable within a manageable range.
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