Inflation trajectory vulnerable to global, domestic shocks

June 11, 2026 (MLN): Pakistan's inflation trajectory remains vulnerable to global energy and commodity price movements, geopolitical developments, domestic supply conditions, and exchange rate stability, according to the Economic Survey 2025-26.

The continued coordination between federal and provincial authorities, prudent fiscal and monetary management, and effective supply-chain oversight will be critical to limiting the pass-through of external shocks to domestic prices.

Against this backdrop, Pakistan's consumer price inflation averaged 6.2% during July-April FY2026, compared to 4.7% in the corresponding period last year.

The increase was driven largely by base effects and higher external energy costs rather than broad-based domestic demand pressures, with underlying inflation remaining relatively contained through most of the fiscal year.

April spike distorts the picture

The April 2026 reading of 10.9% year-on-year drew attention, but needs context. In April 2025, CPI had stood at just 0.3% an exceptionally low base making the year-on-year comparison sharper than underlying conditions warranted.

Non-food inflation surged to nearly 14% in both urban and rural areas in April, primarily reflecting higher energy, transport, electricity, and related production costs.

Core inflation which strips out food and energy told a more moderate story, edging up to 8.0 percent in urban areas from 7.4% in April 2025, while actually declining in rural areas from 9.0% to 8.5%.

Category breakdown: Miscellaneous leads, food provides relief

Among major CPI groups, Miscellaneous recorded the steepest inflation at 18.4%, up from 12.8% last year. Education posted 9.8%, Transport rebounded to 7.2% after recording deflation of 1.1% in FY2025, and Housing, Water, Electricity, Gas and Other Fuels with a substantial 23.6 percent weight in the basket posted 7.3% inflation.

On the softer side, Perishable Food Items saw a sharp deflation of 7.9%, showing improved supply conditions and seasonal factors. Communication inflation collapsed to just 0.6 percent from 7.3%, and Recreation and Culture turned negative at -3.7%.

Urban and Rural divergence

CPI Urban averaged 6.3% during July-April FY2026 against 5.7% last year. Urban core inflation moderated to an average of 7.2% from 8.8% in the prior period, fluctuating within a narrow 6.6–8.0% band a sign of contained underlying pressures.

CPI Rural averaged 6.1 percent, nearly double the 3.3% recorded in FY2025. Rural core inflation eased substantially to 8.2% from 11.6%, though the persistence at that level suggests some stickiness remains.

Notably, rural inflation is no longer primarily food-driven non-food items including energy, transport, and essential services are now the dominant force shaping rural household costs.

WPI and SPI: Wholesale prices contained, SPI builds toward year-end

The Wholesale Price Index averaged 2.3% during July-April FY2026, marginally above the 2.2% recorded in the same period last year.

Agriculture, Forestry and Fishery contracted 1.6% while Ores, Minerals, Electricity, Gas and Water eased to -0.6%, helping keep headline WPI subdued despite Food Products and Textiles holding steady at 5.7%.

The Sensitive Price Index, a weekly tracker of 51 essential items, averaged 4.1% during July-April FY2026 versus 4.9% in the same period last year.

However, SPI built sharply toward the end, reaching 10.1% in April 2026 from -0.9% in July showing that energy pass-through was beginning to filter into essential commodity prices.

Global energy shock: The external driver

The escalation of conflict in the Middle East in February 2026 disrupted global energy supply chains, with the Strait of Hormuz through which nearly 25–30% of global oil trade and around 20% of LNG shipments pass coming under pressure.

The IMF's World Economic Outlook (April 2026) projected energy commodity prices to rise 19 percent in 2026, with oil averaging around $82 per barrel on a 21.4 percent increase.

International data confirmed the trend: crude oil rose 77.8% year-on-year in April 2026, urea surged 121.5 percent, and soybean oil climbed 45%.

For Pakistan a net importer of petroleum products, LNG, edible oil, and industrial raw materials these developments pose direct risks to domestic fuel, electricity, transport, and food prices, with spillover risks to the trade deficit and exchange rate stability.

Government response

To cushion the impact of higher petroleum prices, the Government established the Prime Minister's Austerity Fund 2026 and introduced targeted subsidy measures in coordination with provincial governments, particularly for two-wheelers, public transport, and freight vehicles.

The Economic Coordination Committee, National Price Monitoring Committee, and Competition Commission of Pakistan maintained active oversight of markets throughout the year. Provincial price control enforcement ranging from Punjab's 41 million inspections to ICT's 32,464 checks remained an active part of the policy response.

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