By Ayesha Saba

Pakistan experienced a significant decline in inflation during FY2025-26, marking one of the most notable improvements in the country's macroeconomic environment as price pressures eased following a prolonged period of high inflation, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The survey identifies inflation moderation as a key factor supporting economic recovery, improved consumer confidence and stronger business activity during the fiscal year.

According to the survey, inflation declined substantially compared with FY2024-25 as coordinated monetary, fiscal and administrative measures helped stabilize prices and improve overall economic conditions.

The Ministry of Finance notes that the easing of inflation provided relief to households and businesses that had faced rising costs over the previous two years. Lower inflation helped improve purchasing power and reduced uncertainty across the economy.

The survey indicates that food inflation moderated significantly during FY2025-26, supported by improved supply conditions, better availability of agricultural commodities and relatively stable domestic markets.

Agricultural production played an important role in easing food-price pressures. Despite severe floods during 2025, the agriculture sector grew by 2.89%, while wheat production increased to 29.61 million tonnes. Vegetable production also recorded double-digit growth, helping improve market supplies.

According to the report, exchange rate stability was another major contributor to inflation moderation. A more stable rupee reduced imported inflation and helped businesses manage production costs more effectively.

The survey notes that lower international commodity prices and improved supply-chain conditions also supported price stability during the fiscal year.

The decline in inflation had positive implications for industrial activity. Manufacturers benefited from reduced input cost pressures and greater predictability in business planning.

Large-scale manufacturing recorded growth of 6.11% during FY2025-26 after contracting in the previous fiscal year. The survey highlights that easing inflation helped improve market sentiment and contributed to industrial recovery.

Construction activity also strengthened, growing by 5.73% during the fiscal year. Lower inflation and improving economic conditions encouraged investment in housing, infrastructure and commercial development projects.

According to the Ministry of Finance, inflation moderation also supported stronger private-sector investment. Private investment increased by 12.8% during FY2025-26, reflecting improving confidence among businesses and investors.

The survey notes that lower inflation contributed to a more favorable environment for economic decision-making by reducing uncertainty and improving expectations regarding future costs.

The financial sector also benefited from improving macroeconomic stability. According to the report, stronger confidence supported activity in capital markets and encouraged greater participation in economic and investment activities.

The survey highlights that workers' remittances increased to $30.3 billion during FY2025-26, while the external sector remained broadly stable. These developments helped support confidence in the economy and reinforced macroeconomic stability.

According to the Ministry of Finance, inflation control remains a critical objective because high inflation disproportionately affects low- and middle-income households by reducing real incomes and increasing the cost of living.

The survey notes that inflation moderated alongside broader improvements in fiscal management, external sector performance, and investment activity.

Despite the improvement, the report emphasizes the importance of maintaining prudent economic policies to preserve price stability and prevent the re-emergence of inflationary pressures.

The Ministry of Finance notes that continued fiscal discipline, a stable exchange rate, improved agricultural productivity, and effective supply management will remain important to sustaining the gains achieved during FY2025-26.

With inflation declining sharply from the elevated levels recorded in recent years, FY2025-26 marked a significant improvement in Pakistan's economic environment, supporting recovery across agriculture, industry and services while providing relief to consumers and businesses alike.

Credit: INP-WealthPk