Pakistan Inflation of 4.5% for FY25 at a 9-year low

ISLAMABAD: Pakistan’s Consumer Price Index (CPI) for Jun 2025 clocked in at 3.23% YoY, taking FY25 average to 4.49% reaching a 9-year low, compared to 23.41% in FY24. The MoM inflation in Jun 2025 was up 0.23%.

The food inflation in FY25 has averaged at -0.6%, lowest number in 6 decades. The food inflation has contracted primarily due to falling wheat prices and controlled vegetable prices.

FY25 inflation at 4.5%: The full year inflation of 4.49% is well within our expected range of FY25. The pace of inflation has come down from average of 23.41% in FY24 primarily on the back of deflation in Housing, Water, Electricity, Gas & Fuels of 3.28% thanks to the fall in electricity prices by 30% (Jun 2025 vs. Jun 2024).

Inflation in Jun 2025: On MoM, inflation increased by 0.23% due to an uptick in Housing, Water, Electricity, Gas & Fuels and Transport by 0.7% and 0.94% MoM.

On YoY basis, food segment witnessed growth of 2.56% in overall price level wherein, high weighted items like Milk saw a 6% rise YoY whereas Wheat and Wheat Flour saw a 16% and 14%, respectively fall.

Sherman Expects 3.4% Inflation in June 2025

In other sectors, Health saw a 12.15% rise while education and restaurants & hotels saw a 10.07% and 8.38% rise, respectively. Clothing & footwear and alcoholic beverages & tobacco saw a 8.95% and 5.10% rise respectively.

Outlook for FY26: In FY26, we expect inflation to average around 6-7%. Our annual inflation range results in average MoM inflation of 0.6%. Central bank also projects inflation to remain in its targeted range of 5-7%. Fitch in its recent rating upgrade note also highlighted Pakistan inflation to average 5% for FY25 before picking up to 8% in FY26.

Real Rate in Jun 2025 and FY26E: With inflation of 3.59% for Jun 2025, real rate clocked in at 650bps, and for FY26 real rate are 400-500bps, significantly higher than Pakistan’s historic average of 200-300bps.

Key Risks: Any major deviation in commodity prices from current levels may result in change in inflation estimates.