Govt achieves inflation goal, but consumers suffer

Average inflation hits 7.1% in FY26, lower than target of 7.5%

ISLAMABAD:

The government has achieved the annual average inflation target of 7.5% for the just-ended fiscal year despite the impact of Middle East conflict but consumers suffered from a one-third increase in petrol prices and a 25% spike in the cost of electricity.

According to the Pakistan Bureau of Statistics (PBS), the average increase in prices of a basket of goods and services remained at 7.1% during fiscal year 2025-26, which ended on Tuesday (June 30). The inflation pace was within target, largely because of low food prices during most of the fiscal year.

However, the year-on-year inflation hit 11.1% in June, which was way higher than the target and fuelled by imported goods on account of rising diesel and petrol prices.

PBS reported that prices of liquefied hydrocarbons went up 61% last year, followed by a 40% increase in transport services and a 35% surge in the cost of postal services. PBS bulletin showed that petrol prices in June were lower by 12% due to the falling global market. Despite that, the cost of petrol was 32% higher than last June while electricity charges were 24% higher than a year ago.

Consumers have been grappling with surging prices of petrol, diesel and electricity since 2022 when Pakistan started implementing fiscal stabilisation policies under the International Monetary Fund (IMF) programme to avoid sovereign default.

The average 7.1% inflation was significantly higher than the preceding year because of the impact of ME war. The central bank tried to tackle the imported inflation by increasing its policy rate to 11.5% but prices went down only when global markets dipped.

Official data showed that the pace of increase in prices had slowed down across the country and all three major indicators also exhibited a respite in June. Urban inflation rose 11.2% year-on-year in June, which was slower than the previous month. But compared to a year ago, the rate was almost four times higher.

In rural areas, the inflation went up 10.9% year-on-year in June, again lower than the previous month. But it was three times more than a year ago. The non-food, non-energy core inflation also slowed down to 8.4% on a yearly basis in urban areas and to 7.9% in rural regions.

The average inflation-adjusted key interest rate was positive by 4.4% at the end of fiscal year 2026. This is fattening the balance sheets of banks, which are now unrestrictedly lending money to the federal government after the scrapping of the advance-to-deposit ratio (ADR) tax.

The data showed that wheat became expensive by 65% in June compared to a year ago after farmers started getting a good price for the crop. Onion rates were 60% higher while wheat flour got expensive by 55% last month, according to the PBS.

The overall food inflation index inched up in both urban and rural areas in June. The urban food inflation rose 8.2% whereas the rate jumped 9.4% in rural areas. Contrary to this, the non-food inflation went down in both urban and rural areas due to the reduction in prices of petrol and diesel. However, the consumers are still paying prices that are higher than the pre-Middle East conflict.

For the new fiscal year, the government has set the inflation target at 8.2%, which can be achieved as fuel prices have started coming down in the aftermath of a temporary peace agreement between the United States and Iran, brokered by Pakistan and Qatar.