Inflation projected at 4–5% in August, signaling price stability

August 28, 2025 (MLN): Inflation is projected to remain within the range of 4-5% in August 2025 which shows easing price pressures and a favorable policy environment.

Pakistan’s economy entered FY2026 with stable macroeconomic conditions and improved growth prospects, supported by a stronger external and fiscal position, according to the Monthly Economic Outlook published by the Finance Division.

Previously, CPI Inflation was recorded at 4.1% YoY in July 2025, compared to 3.2% in June 2025 and 11.1% in July 2024. MoM, it increased by 2.9%, following a 0.2% increase in June 2025 and 2.1% increase in July 2024.

YoY major contributing factors include Health (10.8%), Education (10.2%), Clothing & Footwear (8.4%), Restaurants & Hotel (7.7%), Alcoholic Beverage & Tobacco (3.7%), Furnishing &Household equipment maintenance (3.3%), Housing, Water, Electricity, Gas & Fuels (3.6%), Non-perishable food items (2.6%), Transport (2.7%), and Communication (0.5%). While a decline is observed in perishable food items (8.3%), as reported by the finance division.

On the external front, Pakistan’s current account posted a deficit of $254 million in July FY2026, lower than the $348m deficit recorded in July FY2025. Goods exports rose 16.2 percent to $2.7 billion, while imports increased 11.8 percent to $5.4bn, resulting in a trade deficit of $2.7 bn.

Key export gains were seen in knitwear (43.5%), garments (35.5%), and bedwear (38.3%), while major import increases were recorded in petroleum products (27.4%), crude oil (10.4%), and palm oil (26.1%).

FY2025 concluded with notable improvement, supported by strong revenue growth and prudent expenditure control. The fiscal deficit narrowed to 5.4% of GDP from 6.9% in FY2024, marking the lowest in eight years.

The primary surplus rose significantly to Rs2,719.4bn (2.4% of GDP) from Rs952.9bn (0.9%), the highest in 24 years, driven by contained non-markup expenditures.

Total expenditure grew 18% to Rs24,165.5bn, with current spending increasing 15.9% to Rs21,528.6bn. This moderation allowed federal PSDP allocations to rise sharply by 43.3%.

On YoY basis, large scale manufacturing  (LSM) sector has been on a steady recovery since April 2025, peaking in June, and is expected to gain further momentum with improvements in automotive and fertilizer output.

Cumulatively, LSM output contracted by 0.74% during FY2025 compared to marginal growth of 0.78% a year earlier. Out of 22 sectors, 12 showed positive growth, including textiles, wearing apparel, coke & petroleum products, beverages, and pharmaceuticals.

However, momentum appeared stronger going forward, with the automobile sector posting robust gains in July FY2026  car production surged 49%, trucks and buses 40.1%, and jeeps and pickups 34%.

Cement dispatches also rose sharply to 3.997m tonnes in July FY2026, up 30.1%from last year. Domestic sales increased 18.4% to 2.988m tonnes, while exports jumped 84.2% to 1.008m tonnes, signaling an overall pickup in industrial activity.

Moving forward government measures for investment facilitation along with reforms to support private sector-led growth, easing inflation, and accommodative monetary policy may likely to further reinforce business confidence.

 However, flood-related damages may add fiscal pressures and disrupt food supplies in affected areas.  

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