5.8% inflation tests SBP's rate stance

The inflation rate inched up slightly to 5.8% in January, in line with market and official expectations, as Prime Minister Shehbaz Sharif publicly urged the central bank governor to take a bold stance and cut interest rates to support the economy.

The Pakistan Bureau of Statistics (PBS) reported on Monday that the headline inflation rate remained largely stable and clocked in at 5.8% in January compared to a year ago. The average increase in prices of goods and services was in line with the expectations of the market and the Ministry of Finance.

The non-food and non-energy core inflation rates also broadly remained stable, as this benchmark edged up in cities but eased in rural areas.

The new inflation bulletin has once again brought the central bank's decision to keep interest rates in double digits into question. The SBP-dominated Monetary Policy Committee (MPC) did not reduce interest rates last month despite significant room available to it.

In its statement, the central bank said that core inflation has steadied around a relatively higher level of 7.4% in recent months. It added that, as reflected by recent high-frequency indicators, including large-scale manufacturing (LSM), economic activity continued to gain momentum faster than anticipated, mainly led by domestic-oriented sectors.

The central bank acknowledged that inflation expectations of both consumers and businesses continue to ease, projecting inflation to stabilise within the target range of 5-7% in FY26 and FY27, after temporarily exceeding the upper bound for a few months during the current calendar year. Yet, it decided to keep the policy rate unchanged.

Last week, Prime Minister Shehbaz Sharif also urged central bank Governor Jameel Ahmad to take a bold stance and listen to the demand of the business community to reduce interest rates.

Pakistan's economy has been struggling to create enough jobs for new entrants. While speaking to leading exporters last week, the prime minister admitted that the economy needed to grow in view of higher poverty and unemployment in the country.

According to the Ministry of Finance's monthly report, which is based on data from the Bureau of Emigration & Overseas Employment, about 762,000 Pakistanis left the country in 2025 in search of better employment opportunities. The figure was higher compared to a year ago, indicating growing job-related concerns among the young population. Among those who migrated from Pakistan were highly skilled doctors, accountants and other professionals.

The central bank has projected that the economy may grow in the range of 3.8% to 4.8%, but many remain sceptical about the process used to work out the economic growth number. Industrialists have been making calls for urgent measures to stop the closure of factories.

The PBS reported that in urban areas, inflation largely remained stable at 5.8% on a year-on-year basis, but the pace increased by 0.4% to 5.8% in rural areas and towns. It added that, measured by non-food and non-energy items, core inflation increased to 6.9% in urban areas compared to 6.6% in the previous month. Likewise, core inflation in rural areas eased to 8.1%.

The data showed that food price inflation remained at 3.3% in cities but increased to 4.7% in rural areas, due to some downward movement in the prices of perishable food items. The suspension of Pak-Afghan trade has improved food supplies in local markets but caused significant losses to farmers, particularly potato and orange growers.

According to details, the average increase in food prices remained at 3.9%, but there was a 20% reduction in prices of perishable goods last month. Tomato prices went down by 53% on a yearly basis, potatoes by 43%, onions by 29% and pulses by over 25%. Fresh vegetable prices reduced by 20% and tea by 18%. However, sugar prices were 17% higher than a year ago, wheat rates also jumped 26%, followed by a one-fourth increase in butter prices.

Gas charges increased by 23% on an annual basis, while electricity prices were lower by 3.4% on a yearly basis.