By Abdul Ghani

Pakistan's inflationary pressures are expected to ease in the coming months as declining international oil prices, improving external conditions and prudent monetary management help moderate domestic fuel costs and support overall price stability.

According to the Finance Division's Monthly Economic Update & Outlook (June 2026), although headline inflation accelerated in recent months due to higher transport and energy costs, easing global crude oil prices following the Iran-US ceasefire are expected to reduce imported inflation and strengthen the country's macroeconomic outlook.

The report states that Consumer Price Index (CPI) inflation stood at 11.7% year-on-year in May 2026, compared with 10.9% in April and 3.5% in May 2025. However, average inflation remained at 6.7% during July-May FY2025-26, staying within the government's target range for most of the fiscal year despite external shocks and domestic supply-side pressures.

According to the report, the principal contributors to inflation included transport, which recorded a 36.8% increase, followed by housing, water, electricity, gas and fuels at 16.8%, non-perishable food items at 9.4%, clothing and footwear at 8.8%, education at 8.4%, and health at 7.5%. Restaurants and hotels, furnishing and household equipment maintenance, alcoholic beverages and tobacco, and communication also registered price increases, while prices of perishable food items and recreation and culture declined.

The report notes that the Sensitive Price Indicator (SPI) for the week ending June 18, 2026, increased by 0.5%. During the week, prices for 25 out of 51 essential commodities increased, 11 declined, while 15 remained unchanged, indicating that inflationary pressures persisted across a number of consumer items.

According to the Finance Division, the government has already passed on the benefit of lower international crude oil prices to consumers by reducing domestic petroleum prices by Rs74 per litre for petrol and Rs67 per litre for diesel. The report says that any further decline in global oil prices is expected to translate into additional reductions in domestic fuel prices, helping contain transportation costs and ease broader inflationary pressures.

The report attributes the improving outlook partly to easing geopolitical tensions in the Middle East following the Iran-US ceasefire. With geopolitical risk premiums declining, Brent crude oil prices have fallen to around $77 per barrel, their lowest level since early March. As Pakistan is a net oil-importing country, lower energy prices are expected to reduce the import bill, improve the external account and lessen cost-push inflation across the economy.

Monetary policy has also remained focused on maintaining price stability. According to the report, the Monetary Policy Committee (MPC) of the State Bank of Pakistan decided on June 15, 2026, to maintain the policy rate at 11.5% after assessing that recent inflationary pressures largely reflected the lagged impact of developments in the Middle East. The committee also observed that the external account remained manageable following the current account surplus recorded in May and concluded that the overall economic outlook remained broadly unchanged from its previous assessment.

The report notes that inflation is expected to remain in the range of 11-12% during June 2026, before moderating as lower international oil prices gradually feed through to domestic fuel and transportation costs. Continued fiscal discipline, stable exchange rate conditions and improving external sector fundamentals are also expected to support price stability in the coming months.

According to the Finance Division, easing global energy prices, prudent macroeconomic management and sustained reform implementation are expected to strengthen Pakistan's inflation outlook during FY2026-27. The report concludes that these factors will help preserve macroeconomic stability while creating a more supportive environment for economic growth, investment and consumer purchasing power.

Credit: INP-WealthPk