Inflation expected to rise to 9.1% q

Pakistan's inflation trajectory appears to be turning less comfortable just as the economy enters the new fiscal year, with rising food prices and renewed uncertainty over global energy markets threatening to push the cost of living higher. After easing to 11.1% in June, headline inflation is now expected to accelerate to 9.1% in July, according to market estimates, keeping policymakers cautious as they weigh the next interest rate decision.

Market economists at Growth Securities and JS Global have projected July Consumer Price Index (CPI) inflation at 9.1% year-on-year, with the former also expecting a 1.1% month-on-month increase. The forecast would mark a sharp rise from 4.1% inflation recorded in July 2025, while also exceeding the government's average inflation projection of 8.2% for FY27.

Nasheed Malik of Growth Securities attributed the expected monthly increase mainly to higher food prices, although the impact is likely to be partly offset by lower fuel and LPG prices. The food index is projected to rise around 1.4% month-on-month, led by sharp increases in tomatoes, potatoes, chicken and onions due to seasonal factors.

At the same time, lower petroleum prices are expected to provide some relief. Average petrol prices declined 17.7% month-on-month to Rs312.53 per litre, while High-Speed Diesel (HSD) prices fell 14.9% to Rs325.06 per litre, pushing the transport index down an estimated 0.8% during the month. LPG prices also declined 13.3%, contributing a modest negative impact on headline inflation.

According to SBP data cited by Malik, month-on-month CPI trends have remained elevated in recent months, underscoring continued price pressures despite the moderation in annual inflation.

JS Global's Muhammad Waqas Ghani, however, highlighted the risk posed by renewed geopolitical tensions in the Middle East, saying elevated energy costs could add pressure to Pakistan's inflation outlook. The brokerage expects transport inflation to rise 21% year-on-year in July, while food inflation is also projected at 9.1%.

JS Global has also flagged a downside risk scenario in which prolonged Middle East tensions push up imported energy costs and temporarily lift inflation towards 9%, before easing to around 8% as geopolitical conditions stabilise.

Elsewhere in the CPI basket, the report projects miscellaneous items to record the highest year-on-year increase of 11.3%, followed by clothing and food at 9.1%, education at 8.3% and health at 7.4%. Restaurant prices are projected to rise 5.4%, while furnishing costs are estimated to increase 5.9%. Recreation inflation is expected to remain muted at 0.2%, whereas communication costs are projected to rise just 0.8%. On a monthly basis, restaurant prices are estimated to increase 0.4%, while clothing, health, education and recreation are each expected to post a 0.2% increase.

For now, the July inflation reading is shaping up as a reminder that while domestic price pressures have moderated considerably from last year's highs, Pakistan's inflation outlook remains exposed to food supply shocks and developments in global energy markets.

Policy rate forecast

Both brokerages expect the State Bank of Pakistan to keep the policy rate unchanged at 11.5% at its July 27 meeting. Growth Securities sees the positive real interest rate, expected at around 2.4% in July, as supporting the case for a status quo, while cautioning that renewed Middle East tensions could alter the inflation and fuel-price trajectory. JS Global also expects no change in the policy rate, with its assessment factoring in the risk that prolonged geopolitical tensions could push imported energy costs higher and keep inflation elevated.

Sensitive Price Indicator

Short-term inflation, gauged by the Sensitive Price Indicator (SPI), has receded from double-digit levels to 9.66% year-on-year for the week ended July 23, 2026. Despite overall trends, inflation remained in double digits for the lowest income groups.

The easing comes amid price volatility linked to the Israel-US conflict involving Iran, which was temporarily halted after peace talks but later resumed, keeping pressure on fuel costs.

The SPI, tracked weekly by the Pakistan Bureau of Statistics (PBS) across 51 essential items in 50 markets of 17 cities, rose 0.91% from the previous week. The combined SPI stood at 360.88 against 357.61 a week earlier and 329.09 in the corresponding week of 2025.

Tomatoes led the weekly surge with a 39.92% jump, followed by diesel at 15.87% and petrol at 5.23%. Eggs rose 7.31%, potatoes 3.70% and LPG 0.91%. Smaller increases were recorded in cooked daal, tea, mustard oil, garlic, cooked beef and washing soap.

On the downside, chicken prices fell 4.66%, bananas 1.72%, pulse moong 1.08% and pulse mash 1.07%. Rice IRRI-6/9, pulse masoor, sugar and pulse gram also registered minor declines.

Of the 51 items monitored, prices of 22 items (43.14%) increased, eight (15.68%) decreased and 21 (41.18%) remained stable.

On a year-on-year basis, the 9.66% rise was driven by sharp increases in tomatoes (253.04%), onions (81.55%), wheat flour (74.13%), LPG (46.87%), diesel (31.92%), electricity charges for the lowest quintile (22.79%) and petrol (20.32%). Mutton, chillies powder, beef, bananas and plain bread also posted notable gains.

Declines were seen in potatoes (32.69%), pulse gram (21.48%), sugar (17.67%), salt powder (14.09%), chicken (13.73%), pulse masoor (13.55%), eggs (9.59%) and pulse moong (8.67%).

Across consumption quintiles, the week-on-week SPI increase ranged from 0.80% for the third group to 0.98% for the highest income segment, with the combined average at 0.91%. On a year-on-year basis, inflation remained highest for the second quintile at 10.76%, followed by the lowest income group at 10.23%, while the top two quintiles recorded relatively lower rises of 9.23% and 9.11%.