Farooq Awan

Pakistan’s inflationary pressures continued to ease in December 2025, with headline consumer price inflation falling to 5.6 percent year-on-year, while the Sensitive Price Indicator (SPI) recorded a weekly decline of 0.48 percent, according to the Monthly Economic Update and Outlook released by the Finance Division.

Official data show that December’s inflation rate was lower than 6.1 percent recorded in November 2025, although slightly higher than 4.1 percent registered in December 2024. On average, inflation during the first half of FY2026 (Jul–Dec) stood at 5.2 percent, a notable improvement compared to 7.2 percent in the same period of the previous fiscal year, reflecting a broader moderation in price pressures.

The Finance Division attributed the easing inflation trend to a combination of improved supply conditions and price adjustments across key consumption categories. Year-on-year inflation in perishable food items declined sharply by 20.1 percent, contributing significantly to the overall moderation in headline inflation. Recreation and culture prices also declined by 4.3 percent during the period.

Despite the overall easing trend, several non-food categories continued to exert upward pressure on the inflation basket. Education prices rose by 9.9 percent year-on-year, followed by health at 7.7 percent and non-perishable food items at 7.5 percent. Housing, water, electricity, gas and fuels registered an increase of 6.9 percent, while clothing and footwear prices rose by 6.2 percent.

Other contributing categories included restaurants and hotels at 5.6 percent, transport at 4.9 percent, alcoholic beverages and tobacco at 3.9 percent, and furnishing and household equipment maintenance at 3.4 percent. Communication prices recorded a relatively modest increase of 0.6 percent. Short-term price trends also showed signs of stability.

The SPI for the week ending January 22, 2026, declined by 0.48 percent, indicating easing prices for essential consumer items. During the week under review, prices of 11 items decreased, 12 items increased, and 28 items remained unchanged out of a total basket of 51 items, suggesting limited volatility in retail prices.

The moderation in inflation during the first half of FY2026 has provided relief to households and reduced cost pressures for businesses, particularly in the manufacturing and services sectors. Lower inflation has also contributed to improved predictability in pricing and planning, supporting economic activity during the period.

According to the Finance Division, the inflation outlook remains broadly stable in the near term. The report projects that headline inflation is expected to remain within the range of 5.0 to 6.0 percent in January 2026, assuming no major supply shocks or unexpected increases in administered prices. The easing inflationary environment has also helped improve liquidity conditions and support domestic demand.

The Finance Division noted that continued vigilance will be required to manage price risks stemming from global commodity markets and domestic supply dynamics. However, the recent inflation trend suggests that price pressures are being managed more effectively compared to the previous fiscal year.

The sustained decline in inflation, alongside improving performance in large-scale manufacturing and fiscal indicators, reinforces the broader narrative of macroeconomic stabilisation during FY2026. Officials said that maintaining price stability will remain a key priority in the coming months to support economic growth and protect consumer purchasing power.

Credit: INP-WealthPk