Moaaz Manzoor

Pakistan’s inflation is expected to remain within the central bank’s target range in fiscal year 2026 despite a gradual normalization after an unusually low inflation year. After headline inflation averaged 4.49% in fiscal year 2025, a sharp decline from 23.4% in the previous year, inflation is projected to rise moderately in fiscal year 2026.

The Pakistan Investment Strategy 2026, prepared by Arif Habib Limited, projects average inflation is expected to settle at 6.9% in fiscal year 2026, which falls within the State Bank of Pakistan’s medium-term target range of 5% to 7%.

The report available with Wealth Pakistan explains that the rise in inflation does not signal renewed price instability but reflects normalization after an exceptionally low base in fiscal year 2025. Tight monetary policy, disciplined fiscal management, reduced subsidies, and lower imported inflation contributed to the sharp disinflation last year.

According to the document, Arif Habib Limited notes that monthly inflation during fiscal year 2026 is expected to average around 0.84%. Period-end inflation could temporarily rise to slightly above 10%, mainly due to seasonal factors and base effects rather than structural inflationary pressure.

Food prices are expected to remain a key stabilizing factor. The report notes that food inflation concerns emerged following flooding, with monthly food inflation rising to 5.5% in September 2025 and 2.7% in October 2025. However, these pressures eased faster than expected.

In November 2025, food inflation recorded a monthly decline of 0.2%, signaling a return to stability. Arif Habib Limited notes food inflation is expected to average only 0.4% per month during the remainder of fiscal year 2026, even after accounting for seasonal demand during Ramadan.

Core inflation, which excludes food and energy prices, is also expected to remain contained. The report projects non-food non-energy inflation to average around 7.44% in fiscal year 2026, with a similar trend expected in fiscal year 2027. This indicates that underlying inflationary pressures remain under control.

Looking ahead to fiscal year 2027, inflation is projected to rise modestly to around 8.0%, which reflects continued normalization rather than overheating of the economy. The report cautions that risks remain. These include potential currency depreciation, inflationary fiscal measures, volatility in global commodity prices, adjustments in gas tariffs, or disruptions to food supply chains. However, the absence of a major energy price shock and the possibility of persistently low international oil prices remain supportive of the inflation outlook.

Credit: INP-WealthPk