Pakistan’s inflation trends lower as food and energy prices fall

Islamabad: Pakistan's inflation, measured by the Consumer Price Index (CPI), is expected to remain low in March 2025, with a forecasted increase of only 1-1.5%.

This comes as inflationary pressures ease due to lower food and energy prices. According to the Finance Division’s "Economic Update and Outlook March 2025," CPI inflation was recorded at 1.5% year-on-year (YoY) in February 2025, down from 2.4% in January 2025 and 23.1% in February 2024. On a month-on-month (MoM) basis, CPI decreased by 0.8% in February, compared to a 0.2% rise in January.

The report states that inflation is expected to rise slightly in April 2025, possibly reaching around 2-3%. However, the overall trend shows that Pakistan’s economy is stabilizing, with inflation pressures easing. This stability is mainly attributed to falling prices of food and energy, which has helped keep prices steady across the economy.

Fiscal measures to reduce the budget deficit are also having a positive impact. The report highlights that these efforts have led to a primary surplus and a reduced fiscal deficit. Key sectors contributing to the YoY increase in CPI include health (up 14.3%), clothing and footwear (up 13.8%), education (up 10.9%), restaurants and hotels (up 7.6%), and alcoholic beverages and tobacco (up 6.7%). Meanwhile, prices in some areas have dropped, including perishable food items (down 20.3%), non-perishable food items (down 1.5%), transport (down 1.1%), and housing, water, electricity, gas, and fuels (down 0.6%).

Brokerage firm Topline Securities predicts that CPI for March 2025 could fall to a three-decade low, with an increase of only 0.5% to 1% YoY and a monthly rise of 0.9%. If this forecast proves correct, it would bring the average inflation for the first nine months of the 2025 fiscal year to 5.38%, a sharp decline from the 27.06% inflation recorded in the same period last year.

The government of Prime Minister Shehbaz Sharif has also stated that Pakistan’s $350 billion economy has stabilized, largely due to a $7 billion International Monetary Fund (IMF) bailout, which helped prevent a potential default. The government is currently waiting for the IMF’s approval of the first review of the bailout, which, if granted, would release $1 billion ahead of the national budget, usually presented in June.

Inflation has been declining for several months after reaching as high as 40% in May 2023. In addition to the IMF support, increases in exports and remittances are helping to meet the country’s external financing needs. Remittances are expected to rise further during the holy month of Ramadan and Eid ul Fitr, when many Pakistanis working abroad send extra money to their families back home.