Inflation projected at 11% in June

June 30, 2026 (MLN): Inflation is projected to remain within the range of 11-12% for June 2026, as easing geopolitical tensions amid ongoing Middle East peace efforts improve global market sentiment and pull international crude oil prices down from recent highs, the Finance Division said in its Monthly Economic Update & Outlook for June 2026.

The report, issued by the Economic Adviser's Wing, said the decline in oil prices is expected to reduce imported inflationary pressures and lower domestic fuel and transportation costs.

With macroeconomic stabilization largely achieved, Pakistan's economic outlook for FY2027 is expected to strengthen further, supported by improving macroeconomic fundamentals, sustained expansion in large-scale manufacturing, a stable external account, improved fiscal discipline and continued resilience in agriculture.

Real GDP growth for FY2026 reached 3.7%, the highest in four years, with the size of the economy expanding to $452.1 billion.

Growth remained broad-based across agriculture, industry and services despite early-year flood-related disruptions and global commodity market volatility, while average inflation stayed in single digits within the target range.

On the fiscal front, a primary surplus of 3.5% of GDP was recorded during Jul-Apr FY2026, against 3.2% in the same period last year, while the overall fiscal deficit narrowed to 1.1% of GDP (Rs1,350.1 billion) from 3.2% of GDP (Rs3,633.9 billion) a year earlier.

Net federal revenue rose 5.8% to Rs8,601.1 billion during Jul-Apr FY2026, while FBR's tax collection grew 9.7% to Rs11,228.8 billion during Jul-May FY2026, driven by both direct taxes (up 13.0%) and indirect taxes (up 6.7%).

Total expenditure declined 9.9% to Rs11,621.3 billion, mainly on a 21.9% fall in mark-up payments, even as development spending rose 1.2%.

The current account posted a surplus of $255 million during Jul-May FY2026, with May alone contributing a surplus of $459 million.

Goods and services exports stood at $37.4 billion, broadly unchanged from $37.5 billion last year, while imports rose to $69.6 billion from $64.5 billion, widening the trade deficit to $32.2 billion from $27.0 billion.

Remittances climbed 9.2% to $38.1 billion during Jul-May FY2026, with May recording the highest-ever monthly inflow of $4.3 billion, led by Saudi Arabia (23.5% share) and UAE (21.0%).

Foreign exchange reserves stood at $21.5 billion as of June 19, 2026, including $15.9 billion held by the SBP.

CPI inflation was recorded at 11.7% YoY in May 2026, up from 10.9% in April and 3.5% in May 2025, with the Jul-May FY2026 average at 6.7% against 4.6% last year.

Transport, housing and utilities, and non-perishable food were the top contributors. The government reduced petroleum prices by Rs74 per litre for petrol and Rs67 per litre for diesel following the easing of global crude prices, with Brent falling to $77 per barrel on June 18.

The Monetary Policy Committee, in its decision on June 15, 2026, maintained the policy rate at 11.5%, assessing that the impact of the Middle East conflict has now been reflected in recent indicators as headline and core inflation edged up, even as the external account remained manageable following May's surplus.

Large-Scale Manufacturing posted growth of 6.4% during Jul-Apr FY2026, reversing a 1.5% contraction in the same period last year, led by automobiles, food, wearing apparel, and coke and petroleum products. Sixteen of 22 sectors recorded growth.

The PSX's KSE-100 Index gained 10,969 points in May to close at 173,963, with market capitalisation rising by Rs1,143.49 billion to Rs19,166.27 billion, supported by improved geopolitical sentiment after the ceasefire and continued local and institutional buying.

The Finance Division noted that investor confidence improved through the year on the back of continued commitment to the IMF-supported EFF and RSF programmes, reinforced by rating upgrades from Fitch and Moody's, which paved the way for Pakistan's re-entry into international capital markets through a Eurobond issuance after four years and the launch of a Panda Bond.

Globally, the World Bank's Global Economic Prospects report projects growth of 2.5% in 2026, though risks remain tilted to the downside from commodity and energy disruptions, trade policy uncertainty, geopolitical tensions and weather-related shocks.

The J.P. Morgan Global Composite PMI Output Index held steady at 51.8, while the FAO Food Price Index eased marginally to 130.8 points in May.

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