Inflation hits double digits for first time in 21 months

Pakistan Inflation Returns to Double Digits as Energy Costs Surge

Pakistan's consumer inflation returned to double digits for the first time in 21 months, with prices rising by nearly 11 percent year-on-year in April, according to official data. The increase was driven by sharp rises in transport and essential food items, as well as higher energy costs linked to regional tensions.

Inflation Figures and Key Drivers

Official data showed the Consumer Price Index (CPI) rose by nearly 11 percent in April compared with the same month last year. The last time inflation was above 10 percent was in July 2024, when the CPI stood at 11.1 percent. The monthly increase pushed inflation beyond the previous comfort range, as domestic energy tariffs registered a sharp rise during the month.

Transport costs surged by 15.47 percent over the previous month at the national level, while perishable food items recorded a sharp increase of 15.25 percent, highlighting volatility in essential commodities. Housing, water, electricity, gas, and fuels registered a 2.43 percent increase, adding further pressure on household budgets.

Urban inflation stood at 11.11 percent, while rural inflation was slightly lower at 10.56 percent. Food inflation in urban areas increased by 6.9 percent, while rural areas saw a 7.3 percent rise.

Energy Costs and Geopolitical Factors

Energy prices rose sharply during the month, attributed to the continued blockage of the Strait of Hormuz, through which most of Pakistan's energy imports are routed. Prime Minister Shehbaz Sharif has stated that the weekly oil import bill has jumped to $800 million from $300 million before the US-Israel war began on February 28.

The rise in global oil prices has been a key factor behind the inflationary pressures. Analysts at Topline Securities noted that the situation remains prolonged and evolving, with outcomes hinging on whether the conflict ends or a peaceful resolution is reached.

Central Bank Response and Reactions

In response to rising inflation, the State Bank of Pakistan (SBP) increased its policy rate to 11.50 percent from 10.50 percent. The central bank had previously kept the rate unchanged at 10.5 percent since December 16, 2025.

The decision drew criticism from former economic advisor Dr. Ashfaq H. Khan, who questioned the central bank's move to increase the interest rate amid the current economic conditions. His remarks reflect concerns that higher borrowing costs could further dampen economic activity.

Economic Outlook and Forecasts

Analysts warn that inflation could exceed 11 percent if oil prices remain elevated. According to Topline Securities, if current conditions persist, inflation over the next 12 months could average 9-10 percent, with fourth-quarter FY26 inflation potentially surpassing 11 percent. These forecasts are based on an oil price of $100 per barrel, with every $10 increase adding roughly 50 basis points to inflation estimates. At $120 per barrel, average annual inflation could reach 10-11 percent.

The brokerage also lowered its GDP growth forecast for FY27 to 2.5-3.0 percent, down from an earlier 4.0 percent, reflecting a 100-120 basis points impact. FY26 growth is maintained at 3.5-4.0 percent. Sector-wise, industrial growth could fall to 1 percent from 3.9 percent, agriculture to 4.0 percent from 4.4 percent, and services to 2.8 percent from 4.0 percent if the conflict continues. In contrast, if tensions ease, growth could stabilise around 3.5-4.0 percent.

On the external front, analysts expect the current account deficit for FY27 to remain below $3.5 billion (0.8 percent of GDP) with administrative measures. However, slippages or lax import controls could push it above $8 billion (1.9 percent of GDP).

Perspectives

The official data presents a mixed picture: while the year-on-year inflation figure is double-digit, some relief in wheat and flour prices offers limited respite. The central bank's rate hike aims to curb inflation, but critics argue it may stifle growth. Analysts' forecasts highlight significant uncertainty, depending largely on the trajectory of global oil prices and the resolution of geopolitical tensions.