Pakistan's consumer price inflation moderated to 11.1% year-on-year in June 2026, a decrease from 11.7% in May, but still significantly higher than the 3.2% recorded in June 2025. This easing was noted by the Pakistan Bureau of Statistics, though it remained above the 10.9% reported in April. Despite this slight cooling, the Ministry of Finance projects July inflation to be between 9%-10%, primarily driven by the impact of higher international oil prices on domestic energy and transportation costs.
The average inflation for fiscal year 2025-26 stood at 7.1%, an increase from 4.5% in the previous fiscal year. Transport was a major contributor to annual inflation in June, with prices rising 25.7%, followed by housing, water, electricity, gas, and fuels at 15.5%. Non-perishable food items saw a 10.2% increase, clothing and footwear 9.3%, education 8.3%, and health 7.6%. These figures highlight the broad impact of inflationary pressures across various sectors.
Geopolitical tensions in the Middle East, particularly the conflict in the Strait of Hormuz, continue to pose significant downside risks to Pakistan's inflation outlook and external sector. Although the State Bank of Pakistan's Monetary Policy Committee maintained the policy rate at 11.5% on July 27, acknowledging some improvement, they also expressed concerns that an external shock, like a sustained oil-price surge, could quickly undo progress due to Pakistan's heavy reliance on imported energy. Renewed US-Iran hostilities are specifically cited as a risk to global energy prices, trade, and financial market stability.
Foreign direct investment (FDI) saw a sharp 33.9% contraction, declining from $2.477 billion in 2024-25 to $1.636 billion in the last fiscal year. Exports also decreased by 4.6%, from $32.3 billion to $30.8 billion over the same period. Despite these challenges, the external sector is expected to remain resilient, supported by government efforts to boost exports and continued strong remittance inflows. The current account recorded a modest deficit of $139 million in the last fiscal year, and foreign exchange reserves stood at $22.7 billion as of July 17, 2026, including $17.3 billion held by the SBP, providing some buffer against external shocks.
