In February 2025, Pakistan’s annual inflation rate declined to 1.5%, marking its lowest point since November 2015. This significant decrease was primarily driven by falling prices of perishable food items, notably wheat flour. The Consumer Price Index (CPI) also showed a month-on-month reduction of 0.8% during this period.
The Ministry of Finance had anticipated February’s inflation to be between 2% and 3%, with projections suggesting a rise to 3%-4% by March. The steeper-than-expected decline is largely attributed to reduced prices of essential commodities such as wheat, certain pulses, and onions and a slight decrease in electricity charges. These items hold substantial weight in inflation calculations, so even minor price reductions can significantly impact the overall rate.
Conversely, domestic prices for sugar and edible oil have been on the rise, despite global rates for these commodities declining. The government has allowed sugar exports, particularly to Afghanistan, citing surplus stock as the reason.
Prime Minister Shehbaz Sharif expressed satisfaction over the continuous decline in CPI inflation, attributing it to the efforts of his economic team. He noted that economic indicators are improving and that the benefits of macroeconomic improvements are beginning to reach the populace. The Prime Minister also expressed hope for further decreases in inflation.
During the first eight months of FY25 (July-February), the average inflation rate was 5.85%, a significant drop from the 27.96% recorded during the same period last year. Analysts attribute this decline to factors such as lower global commodity prices, a stable exchange rate, a higher base effect, and improved agricultural outputs. The International Monetary Fund (IMF) has revised its inflation forecast for FY25 down to 9.5% from the previous estimate of 12.7%.
In February, urban inflation stood at 1.8% year on year, while rural inflation was recorded at 1.1%. Food inflation for the same month showed negative growth of 0.9% in urban areas and -4.3% in rural areas, reflecting the overall decrease in food prices.
This downward trend in inflation signifies a period of disinflation for Pakistan, indicating a slowdown in the rate at which prices are rising rather than an overall decline in price levels (deflation). Despite the decrease in inflation, the Pakistan Bureau of Statistics reports that average cumulative inflation over the past 49 months has increased by 83%, affecting the retail prices of all consumer items. Therefore, while the inflation rate has dropped, this does not necessarily translate to a reduced cost of living for consumers.
The sustained decline in inflation has also influenced monetary policy decisions. The State Bank of Pakistan has responded by reducing its key policy rate by 100 basis points to 12% in January 2025, marking the sixth consecutive cut since June 2024. This aggressive reduction, totaling 1,000 basis points from a high of 22%, aims to revive the country’s business and economic sentiment amid decreasing inflation.
Overall, the significant drop in inflation reflects the effectiveness of Pakistan’s economic stabilization efforts, supported by the IMF’s aid package, and indicates a positive trajectory for the country’s economic health.
