Inflation projected at 10.5% in October FY27

October 29, 2026 (MLN): Inflation is projected in the range of 9.5-10.5% for October 2026, with the subsequent path sensitive to international energy prices, food supplies and base effects, even as Pakistan’s economy consolidates macroeconomic stability in the first quarter of FY2027.

The near-term trajectory remains supported by improved external financing, better Kharif harvests, and strong automobile and cement activity, according to the Finance Division’s Monthly Economic Update and Outlook for October 2026.

The division flagged geopolitical tensions, recurring conflict in the Gulf region, volatile oil prices, trade disruptions and elevated global inflation as the main downside risks to the economy.

The current account deficit stood at $874mn in Jul-Sep FY2027, compared with $755mn a year earlier, as import payments rose.

Goods imports grew 14.3% to $17.8bn on higher purchases of machinery, metals and transport equipment, alongside increased energy costs, outpacing a 7.7% rise in goods exports to $8.5bn.

Workers’ remittances increased 14.0% to $10.9bn, more than covering the combined goods and services trade deficit.

Food exports rose 25.3%, led by rice, while textile exports gained 5.3%.

Total foreign investment reached $3.65bn against a net outflow of $32.9mn a year earlier, with portfolio investment recording net inflows of $2.9bn compared with net outflows of $633.3mn. FDI rose about 20% to $720mn.

A $3.0bn sovereign Eurobond issuance in September was central to the improvement, helping deliver a balance of payments surplus of $3.1bn against a deficit of $274mn in the same quarter last year.

SBP’s liquid reserves stood at $21.5bn on October 16, while total liquid reserves were $26.8bn. The rupee stood at Rs276.8/$ on October 28 against Rs280.97/$ a year earlier.

On the fiscal side, FBR tax collection grew 7.0% to Rs3,086.2bn in Jul-Sep FY2027, exceeding the target by Rs33.2bn. Sales tax rose 11.6%, federal excise duty 3.6% and customs duties 0.5%, while direct taxes grew 5.5%.

The overall fiscal surplus narrowed to Rs1,197.9bn (0.8% of GDP) in Jul-Aug from Rs2,123.8bn (1.7% of GDP) a year earlier, as mark-up payments rose 36.6% and development expenditure surged 69.5%.

The primary surplus stood at Rs2,311.2bn (1.6% of GDP), against Rs2,938.9bn (2.3% of GDP) last year.

Total expenditure increased 20.7%, while non-interest expenditure fell 8.1% on a 90.0% cut in subsidies.

Large-Scale Manufacturing grew 1.9% in Jul-Aug FY2027, compared with 4.8% a year earlier. In August, output rose 0.7% YoY but fell 5.0% from July, with lower production in food, chemicals and pharmaceuticals weighing on the monthly result.

During Jul-Sep, truck and bus production rose 54.2%, car production 31.8% and two- and three-wheeler production 28.1%. Jeep and pickup production gained 1.2%, while tractor production fell 15.3%.

Cement dispatches rose 3.9% to 13.1mn tonnes. Domestic dispatches gained 7.8% to 10.8mn tonnes, offsetting an 11.3% fall in exports to 2.3mn tonnes.

Kharif 2026 delivered strong results for most major crops. Maize production is estimated at 9.98mn tonnes, up 12.1%, sugarcane at 97.3mn tonnes, up 8.8%, and rice at 10.2mn tonnes, up 1.8%. Cotton output declined 4.8% to 6.71mn bales.

Agricultural credit disbursements rose 32.7% to Rs540.5bn in Jul-Aug, from Rs407.2bn a year earlier. Urea offtake rose 8.4% to 3,366 thousand tonnes during Kharif 2026 (Apr-Sep), while DAP offtake fell 25.4% to 485 thousand tonnes. Tractor sales increased 37.8% to 4,109 units in Jul-Sep.

The government has fixed the wheat price at Rs4,500 per maund for Rabi 2026-27.

Revised national accounts placed FY2026 real GDP growth at 3.65%, marginally below the earlier estimate of 3.70%. Agriculture was revised up to 3.50% from 2.89%, while industry and services grew 3.34% and 3.81%, respectively.

Headline CPI inflation eased to 10.3% YoY in September from 11.1% in August, compared with 5.8% a year earlier, bringing the Jul-Sep average to 10.2% against 4.3% last year.

Transport prices rose 27.4% YoY, while housing, water, electricity, gas and fuel prices gained 12.4%. Perishable and non-perishable food prices rose 11.8% and 7.6%, respectively.

The Sensitive Price Indicator increased 0.65% in the week ended October 22, with prices rising for 19 items, falling for 12 and remaining unchanged for 20.

The Monetary Policy Committee raised the policy rate by 50bps to 12.0%, citing inflationary risks from the intensifying Middle East conflict and persistently high global energy prices. The decision aims to anchor inflation expectations, contain second-round effects and keep inflation within the target range.

Broad money (M2) contracted 3.9% between July 1 and October 16, against a 2.5% contraction a year earlier. Net domestic assets declined by Rs2,360.3bn, more than offsetting a Rs537.5bn increase in net foreign assets.

Net retirement of government borrowing for budgetary support stood at Rs2,571.8bn, compared with Rs1,822.9bn a year earlier. Of this, Rs1,873.9bn was from scheduled banks and Rs697.9bn from the SBP.

Private sector credit recorded net borrowing of Rs5.7bn against a net retirement of Rs21.1bn a year earlier, with the outstanding stock about 15.0% higher YoY. Demand is expected to rise further with the arrival of cash crops.

The KSE-100 fell 7,006 points in September to close at 169,969, while market capitalization declined Rs903bn to Rs18,928bn, as higher energy costs weighed on earnings expectations and the interest rate outlook. The index stood at 165,736 on October 28, up 3.52% from a year earlier.

Globally, the IMF’s October World Economic Outlook projects growth of 3.1% in 2026 and 3.4% in 2027, with global headline inflation rising to 4.7% in 2026 before easing to 4.1% in 2027. The J.P. Morgan Global Composite PMI rose to 54.3 in September from 53.5.

Brent crude averaged $116.8 per barrel in September, up 28.4% from August. The FAO Food Price Index rose 1.5% to 136.0 points.

Overall, while higher energy prices and geopolitical tensions remain key risks, resilient remittances, a stronger reserve position, renewed access to international capital markets, better harvests and strong automobile and construction activity position Pakistan to sustain the recovery while consolidating stability.

The government said it remains committed to anchoring inflation expectations and reinforcing fiscal and external resilience, with targeted fuel subsidies cushioning vulnerable households and structural reforms supporting investment and productivity.

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